Jumbo Loans

The Federal National Mortgage Association (FNMA [dubbed Fannie Mae]) and the Federal Home Loan Mortgage Corporation (FHLMC [dubbed Freddie Mac) are two government sponsored enterprises authorized to make loans and guarantee loans. These two entities control about 90% of the secondary mortgage market. The loans are not government guaranteed. These corporations just establish standards and guidelines for the market. Loans that fit within those guidelines are called "conforming" loans.

So what does all this have to do with jumbo loans?

Well, every year these entities publish the current loan limits. The loans that are too large to fit within the industry established guidelines are called non-conforming or jumbo loans. These non-conventional loans are harder to find funding for since they are not backed by Fannie Mae and Freddie Mac. They are a higher risk, and therefore, harder to obtain. The interest rate is generally higher, and often, the down payment requirements are higher. However, there are lenders that will fund them.

The up side is that there is more flexibility for the purchaser by way of their ability to purchase the home they actually want with involvement in negotiating the terms. Sometimes this can be worth the extra cost and effort. As with any loan, review your options before making any final decisions.