The definition of a “Jumbo Mortgage” is a mortgage loan whose total amount is higher than the standard conventional limitations. Jumbo loans are merely home loans for higher-than-normal loan amounts.

The gold standard of requirements to be “typical” in the lending industry is what we usually call a “conforming” and or “traditional” loan; that is, a loan that complies with the secondary market companies, who’s traditional underwriting requirements relating to credit, income and asset verification, residential or commercial property features, etc.

A lot of lenders want to provide lending over and above these conforming quantities, but the larger the jumbo loan is, the larger the threat is for the lender if you happen to default on the jumbo loan.

As I just mentioned, the more the funds the bank provides, the more it stands to lose if something fails and they need to foreclose on that residential or commercial property in question.

Due to the fact that the lender is taking a higher risk with the size of the jumbo loan, they will generally make up for it by charging higher interest rates than they would on a loan that is within the “gold standard” loan limitations. All lending institutions vary in the premium they add for jumbo loans, but an excellent general rule is to expect to pay a rate of interest about 0.5% higher than you would for an otherwise similar conforming loan.

With traditional lending institutions, these jumbo loan amounts are set in stone, especially if they are backed by Fannie Mae or Freddie Mac.