A jumbo mortgage is a loan whose principal value exceeds the standard limits for Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy loans from banks. As a result, the interest rates on these loans are higher because lenders don’t have the assurance that Fannie or Freddie will guarantee the purchase of the loans. Brokers and lenders must be willing to take on greater risk to fund jumbo mortgages.
Advantages of a jumbo mortgage:
- Allows the buyer to borrow a larger amount than allowed by Fannie Mae or Freddie Mac
- Available to borrowers who do not qualify for a conforming loan
- Commonly used for luxury homes