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In the United States mortgage industry, the maximum amount of money you can borrow for a conventional loan is $417,000 (2006, continental US). This limit is set by the two large agencies that purchase the majority of mortgages, Fannie Mae (FNMA) and Freddie Mac (FHLMC). So what do you do if the house you're going to buy is more expensive? It's possible to secure a mortgage in excess of the limits set forth, as other investors step in. Banks, and insurance companies are two of the lenders that set up what are called jumbo loans. This article looks at jumbo loans, some of the jumbo mortgage lenders, what is the jumbo loan limit, and other details associated with jumbo loans.

What Is A Jumbo Loan?

As stated previously, a jumbo loan is a mortgage that is in excess of what Fannie Mae and Freddie Mac have determined is the average mortgage amount. Jumbo loans are similar to conventional loans with the exception of a higher interest rate, due to the increased risk to the lender. If a borrower defaults on a jumbo loan, a lender may have a difficult time reselling a higher priced property.

Jumbo mortgage lenders have to keep in mind that the government is not going to underwrite a jumbo loan because this type of loan doesn't fall into parameters. The lenders have to assume risk that a borrower may default, and the lender will be stuck with a property they may not be able to sell quickly. This risk is reflected in higher interest rates, down payments, longer payoff periods and simply not taking on jumbo loans.

The current upper limit set forth by Freddie Mac and Fannie Mae is $417,000 in the continental US and 50% higher for Alaska, Hawaii, and the US Virgin Islands. Jumbo loan limits are up to $650,000. Beyond that amount and up to $10,000,000 is considered a super jumbo loan.

Some borrowers, just above the limits for a conventional loan will take out a second mortgage to be able to fall within conventional loan limits. For example, if the property they are looking at is say $450,000 they can use a conventional loan for $417,000 then make up the difference with a second mortgage. The higher interest rate of the second mortgage still will be less expensive in the long run compared to the higher interest of a jumbo loan.

With home values soaring, more and more people are finding themselves using jumbo loans to finance the home of their dreams.

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