Related Terms: FHA Jumbo Loan, Non-conforming Loan
The government enterprises Fannie Mae and Freddie Mac have limits on the size of mortgage loans, but when a loan exceeds that limit it is known as a jumbo loan. Such mortgages are too expensive to be sold to Fannie Mae or Freddie Mac, which is why the limits are placed.
If you’re considering buying an expensive, luxury home, a jumbo loan may be a good option. The interest rates for such mortgages may be higher than conforming loans (those that fall under the Fannie Mae and Freddie Mac limits), but they have been dropping since 2009.
You don’t have to empty your savings to help finance the loan, and it’s simple enough that there’s no need for multiple mortgages. With new guidelines from the FHA, limits for jumbo loans have increased, and there's a greater chance of them being backedby the government.
The downside to jumbo loans is that, even though the application process has been simplified, they’re not easy to qualify for. As a borrower, you need to have an almost excellent credit score, make a large down payment, and have a low debt-to-income ratio.