What is a Jumbo Mortgage?

Posted by on Friday, February 22nd, 2019 at 7:45am.

Have you heard of a Jumbo loan before?  Most people have, but few know what it actually means and how it can affect the purchase of their home. 

With the Denver market having an average homes sales price of $500,683.00 in January 2019 (and almost all of 2018 staying in the $500k zone) jumbo home loans have not only been on the rise, they seem like the normal things to do.  But is it?

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are the large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders.  However, they are also the same agencies that set the conforming loan limits.  What does this mean?  It means that they are setting the maximum value that they will purchase from a lender.  When the loan amount is above the conforming loan limits the loan is referred to as a Jumbo Loan.  In the past Jumbo loans were considers riskier because luxury homes are harder to sell quickly if there is a default on the mortgage. 

Ok, so FNMA and FHLMC are in charge of what makes a loan a Jumbo mortgage, whats the big deal?  The rate you receive on average is 1.5% higher and the down payment is 20% or more to get the numbers to work (not always, and not with all lenders).

Maximum conforming loan limits for 2019 were released on 11/27/2018 and according to FHFH.gov; “The Federal Housing Finance Agency (FHFA) today announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2019.  In most of the U.S., the 2019 maximum conforming loan limit for one-unit properties will be $484,350, an increase from $453,100 in 2018.”

However this doesn’t tell the entire story.  They continue to explain that “High-cost area limits are...

For areas in which 115 percent of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit will be higher than the baseline loan limit.  HERA establishes the maximum loan limit in those areas as a multiple of the area median home value, while setting a “ceiling" on that limit of 150 percent of the baseline loan limit.  Median home values generally increased in high-cost areas in 2018, driving up the maximum loan limits in many areas.  The new ceiling loan limit for one-unit properties in most high-cost areas will be $726,525 — or 150 percent of $484,350. 

Special statutory provisions establish different loan limit calculations for Alaska, Hawaii, Guam, and the U.S. Virgin Islands.  In these areas, the baseline loan limit will be $726,525 for one-unit properties.

As a result of generally rising home values, the increase in the baseline loan limit, and the increase in the ceiling loan limit, the maximum conforming loan limit will be higher in 2019 in all but 47 counties or county equivalents in the U.S.   

  • For a list of the 2019 maximum loan limits for all counties and county-equivalent areas in the U.S. click here
  • For a map showing the 2019 maximum loan limits across the U.S. click here.  
  • For a detailed description of the methodology used to determine the maximum loan limits in accordance with HERA, click here."

Having a knowledgable lender in this situation is key to getting the home of your dreams.  

I’m happy to introduce you to a qualified ender that can answer your questions.  Reach out to me at Krystal@westandmainhomes.com

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