What makes a jumbo loan a jumbo?

“The short answer, its size.”

Fannie Mae and Freddie Mac are two of the largest mortgage purchasers or investors in the United States. So much so that most of the lending done at banks, credit unions and retail mortgage lenders conform to Fannie’s and Freddie’s guidelines when lending money for mortgage loans. Each year Fannie and Freddy establish their loan size limits (which are conveniently identical) above which they will not purchase.

Any loan amount that exceeds this limit is referred to in the mortgage business as a jumbo loan.

Why would jumbo loans be treated differently?

“The short answer, less purchasers.”

Lending large sums of money over a large time horizon means that money is not available for investors to liquidate. Fewer investors have the amount of capital required to lend for long periods of time and the larger the loan sizes the faster the money dries up. This means that investors will compensate for the larger risk with slightly higher interest rates. The lender may also require more evidence of your ability to repay the loan such as several months reserves and a good repayment history, especially on mortgage related obligations. That doesn’t mean to imply that borrowers with past credit events looking to obtain a mortgage with a higher loan amount are out of luck.

Many lenders have programs available with shorter seasoning requirements but be prepared to pay a higher interest rate.

It is also a common misconception that you must have a larger than average down payment with a jumbo loan. This is not true. Depending on your credit and other compensating factors, low down payment options exist for higher loan amounts too.

As a local mortgage broker, Motto Mortgage Consultants like Ken has access to a multitude of lenders with a wide array of products. Trust us to ensure you obtain the best jumbo loan product for your needs.