Definition of a Jumbo Mortgage
Jumbo mortgages are defined by a loan amount that exceeds the maximum amount that Fannie Mae and Freddie Mac will loan, otherwise called the conforming loan limit. Currently, the conforming loan limit is set at $417,000, so if you are looking to obtain a mortgage above that amount, you must either pay for anything over $417,000 in cash or obtain a jumbo mortgage.
Benefits of a Jumbo Mortgage
Jumbo mortgages have one main benefit and that is the ability to obtain conventional financing above the conforming loan limit of $417,000.
Other Jumbo Mortgage Considerations
Tighter Qualification Standards
Jumbo mortgages have more stringent qualification standards than most other mortgages because the lender is taking on more risk by loaning a higher balance. Additionally, because payments are higher, more income and lower debt-to-income ratios are also generally required.
Jumbo mortgages typically have between a 0.25% to 0.75% higher interest rate than other mortgages as well. This is further risk protection placed by the lender.