What is a Jumbo Mortgage?

For a fuller explanation, it is important first to understand the terms "conforming" and "non-conforming" in mortgage lingo. When a home loan is "conforming," that means it fits all the requirements and guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored entities (GSEs) which buy mortgage loans in bulk from lenders, then bundle them and, in turn, sell them to investors on the open market.

These bundles, called mortgage-backed securities (MBS), are considered very safe investments because there has traditionally been very little risk of default among the home loans within these bundles. One of the requirements set by Fannie and Freddie is home price; basically, higher home prices are one factor that can increase risk.

If the home is more expensive than the loan limits set by the FHFA, that home loan is considered a little riskier of a proposition than one that falls under the conforming limit, so these "jumbo" mortgages are therefore considered "non-conforming," and are not bundled into MBS alongside conforming loans.

But as your local mortgage advisor, we don't consider you a risk just because you're trying to buy enough home for your growing family or refinance a jumbo loan! Keep in mind, all the things explained above are happening behind the scenes; they don't really affect you during the home-buying process. We will be able to provide guidance if a jumbo loan best suits your needs and goals.