Jumbo Mortgages: What Are They?
A “jumbo” mortgage is any mortgage that has a principal amount over the “conforming” loan limit. In Maricopa County, the conforming loan limit is $417,000 – and it changes from time to time (either up or down). A conforming mortgage is one that the government sponsored enterprises (GSE’s) of Fannie Mae and Freddie Mac are authorized to purchase.
Why Are Jumbo Mortgages Harder To Get?
The reason that jumbo mortgages are “harder” to get than FHA or conforming loans is because there is no government sponsored enterprise that is authorized to buy them – so it is up to private investors to buy them. The private investors who buy, hold and service the jumbo mortgages are usually large lenders such as US Bank, ING, Bank of America, etc. The term “private investor” doesn’t mean your neighbor down the street. Usually.
Why Do Jumbo Mortgages Have Higher Rates Than Conforming Loans?
Jumbo mortgage loans have higher risks associated with them for the investor than conforming loans Jumbo mortgage loans are a higher risk for lenders / investors. This is because if a jumbo mortgage defaults, it is harder to sell a higher priced home without deeply discounting the price. The combination of the fact that there is no ability for the government sponsored enterprise to buy the loan from the investor and the fact that it is more difficult to sell the underlying asset in the even there is a default results in higher rates than conforming loans.