A jumbo loan is not necessarily as large as many people think. There are many misconceptions about jumbo loans. Some sources on the internet define a jumbo loan as any loan over $1 million dollars. However that definition is inaccurate. The true definition of a jumbo loan is a home loan that exceeds the maximum conforming loan amounts as set by Fannie Mae and Freddie Mac.
These amounts vary from state to state and change yearly. In 1998 a jumbo loan was any loan over $227,150 for a single family home. That amount has increased yearly, and as of 2005 borrowing over $359,000 in most states is considered of jumbo loan. These numbers increase for two, three, and four family homes and reaches $691,600 in most states.
Jumbo loans are becoming more common place and an increasingly valuable financial tool as home prices and sizes continue to increase. A jumbo loan is the only option available in many communities and many more banks are offering them as a result.
Besides the loan amount the main difference between a jumbo loan and a conforming loan is the cost of borrowing. Typically these loans charge an interest rate an 1/8 to a 1/4 point higher. While it may not sound like much, over the term of a jumbo loan this can add up to tens of thousands of dollars.
Still, a jumbo loan shares more similarities to conventional loans than differences. With either loan borrowers still have the option of choosing between a fixed rate mortgage and an adjustable rate mortgage. The repayment times are also similar, despite the larger amounts associated with a jumbo loan.
Choosing a jumbo loan is oftentimes the single largest financial decision that a family will ever make. As with any loan it is important to compare rates, terms, and shop around for the best offer. With proper planning a jumbo loan can help free up cash and help put you in the home of your dreams.