What is a Jumbo Loan?

 A Jumbo Loan is a mortgage with a loan amount that surpasses Fannie Mae and Freddie Mac’s conforming (traditional) loan limit. A Jumbo Loan is also known as a non-conforming loan. The 2009 Jumbo Loan amount is for any home loan exceeding $417,000. The Jumbo Loan limit may change from year to year.

Benefits of a Jumbo Loan

Jumbo Loans offer more financial flexibility for homebuyers, because they let borrowers purchase more expensive homes. Jumbo Loans can have a fixed or adjustable interest rate.

Disadvantages of a Jumbo Loan

A Jumbo Loan has a higher interest rate than a traditional, or conforming, mortgage. Depending on the market, a Jumbo Loan could be an entire percentage point higher than a conforming loan. When interest rates are low, however, homebuyers often take advantage of Jumbo Loans in order to purchase the home of their dreams.

Who Should Consider a Jumbo Loan?

Borrowers turn to a Jumbo Loan when a traditional mortgage cannot cover the full amount to be borrowed. This often happens in more expensive urban areas where the cost of buying a home is far greater than other parts of the nation.

For example, a $500,000 home in Alabama would most likely be considered a large, very nice home. In Philadelphia, however, a $500,000 home could be a modest starter home. A homebuyer in Philadelphia would need to use a Jumbo Loan to purchase such a home.

Note that some locations, such as Boston, Los Angeles, and Hawaii, have a higher Jumbo Loan limit (up to $729,750), to account for the higher home prices. Visit Fannie Mae to learn the Jumbo Loan limit of your city.