Jumbo Loans Explained

In some real estate markets, a house in the $400,000 range is little more than a starter home. So why is it that a home loan in the mid $400's is considered a Jumbo Mortgage Loan?

Good question. While the rest of us may see the term "jumbo" as relative, Fannie Mae and Freddie Mac, two government sponsored mortgage entities, have definite opinions. Each year, a new "conforming loan limit" is published by these organizations.

What is the Conforming Loan Limit?

The conforming loan limit is the maximum loan size eligible for purchase by either Fannie Mae or Freddie Mac, who purchase the underlying securities from mortgage originators. Those funds are then reinvested in new mortgages, and the flow-of-funds cycle continues.

The conforming loan limit, or "Jumbo Loan amount" is set every January. The 2006 limit for single-family homes and condominiums is $417,000. Quicken Loans conforming loan limit has also been raised to $417,000.

When a Loan Becomes a Jumbo

When a loan amount is higher than the conforming limit, it becomes a Jumbo Loan, or non-conforming loan, with slightly higher interest rates. Jumbo Loans, combined with historically low mortgage rates, can bring greater flexibility for some home buyers to purchase the house they want and make the payment they want.