Jumbo Loan

A Jumbo Loan is simply a loan that is over the limit that Fannie Mae and Freddie Mac will purchase from the financial institution that is giving you the loan. Nearly all loans are sold to one of these agencies. Fannie Mae and Freddie Mac are private corporations that were authorized by Congress to help keep money flowing in the home ownership world.

A Jumbo loan is a first mortgage greater than $417,000.

Fannie Mae and Freddie Mac sell financial securities to investors to raise capital. They take these funds and purchase mortgages from banks and other lending institutions. The bank takes these funds and loans it to the public so we can buy homes. This is how the banks, stock market, and housing markets are all intertwined. If people are foreclosing on their homes, the investments don't do as well, the investors look elsewhere to invest their money, the banks have less money to lend so they tighten their standards, and round and round we go.

What Does This Have to do With Jumbo Loans?

Fannie Mae and Freddie Mac only purchase Arizona mortgage loans up to $417,000. There was a law change recently that increased the limits, but the loan limits did not change in the state of Arizona.

If your mortgage is over this amount, the lending institution has to look elsewhere to sell your mortgage. This is going to be some type on investor. Because of this, your mortgage rate is going to be higher than if it was a conforming loan. A conforming loan is one that is able to be purchased by Fannie Mae or Freddie Mac.

How much higher your interest rate is depends on a number of factors. I have heard from others that you can count on paying an additional half percent interest rate, but that value really fluctuates depending on market conditions. It's like any other loan. If there is a higher risk for the investor, the interest rate for your loan will be higher.

To boil it all down... If your loan is not a conforming loan you will have a higher interest rate because it is over the limit that Fannie Mae and Freddie Mac are allowed to purchase. The terms of the loan are usually similar to any other fixed or adjustable rate mortgage.

Are you finished reading about jumbo loans? Then return to our section on Arizona mortgage loans.