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Who Needs a Jumbo Loan?

By Sari R. Updated on 12/29/2014
Large home purchase with a Jumbo LoanWhile most homes are within a certain threshold of price range, if your home purchase requires a loan for a larger than average amount of money for the area, then you may have been told by your lender or real estate agent that you require a type of mortgage referred to as a Jumbo Loan.  This unique type of home loan specifically relates to the purchase price of the property and property type (one to four units) in relation to the housing market in that particular county as set by the conforming loan limits set by Fannie Mae and Freddie Mac.

What is a Jumbo Loan?

Depending on whether the property is one, two, three or four units as well as the location determine what is considered a Jumbo loan. Nationally, single unit homes requiring mortgages over $417,000 is considered a Jumbo mortgage, unless the property is listed in a high cost area. Home loans over the conforming loan limit set by Fannie Mae and Freddie Mac for that area will require a non-conforming or Jumbo loan. 
You will find that these larger loans will be harder to be approved for because lenders will have to assume all the risk themselves since they can not be sold to Fannie Mae and Freddie Mac.
Since lenders do consider Jumbo mortgages a higher risk, you will notice that they come with a higher interest rate, and are harder to qualify for. In fact, most lenders require that you have a credit score of 700 or more just to qualify. In addition to these high standards for credit scores, they often require large down payments, strong income, and substantial reverses.

Super Conforming Jumbo Loans

There are some exceptions to these rules set by Fannie Mae and Freddie Mac however. Some counties are what are considered to be a high cost housing market. These counties can be found in areas of Alaska, California, Colorado, District of Columbia, Florida, Georgia, Hawaii, Idaho, Massachusetts, Maryland, North Carolina, New Hampshire, New Jersey, New York, Pennsylvania, Utah, Virginia, Washington and West Virginia as well as in U.S. territories of Guam and the Virgin Islands. In this case, they may be able to purchase loans on homes for up to $625,500. Whether or not an area is considered a high cost housing market is determined by the county and the average home selling price in that county. A super conforming jumbo mortgage is one that is more than the limit of $417,000 but does not exceed the county limit.

Conforming Loan Limits

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac will annually review these limits to make any necessary changes in the loan limits. This agency uses the national average home price to determine what the limit should be in each area. Anything outside of the conforming or super-conforming loan limits will be considered a Jumbo loan and the lender will determine what the maximum amount is that they are willing to lend for a property.
While the conforming minimums and maximums vary by county, below is a general guideline.
Conforming & Super Conforming Loan Limits infographic

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About The Author:
Sari R.
Sari R. is a mortgage editor for Lender411com. She graduated with a Bachelor's Degree in Screenwriting and Public Relations/Advertising from Chapman University. She can be reached at sarelyn@lender411com.

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