Jumbo Loans

Jumbo home loan programs have increased steadily over the past few years and this is due in part to a higher level of completion between banks and lenders in general. Simply, a Jumbo loan is one that covers any amount that is higher than the current allowable limits set by the GSEs, Freddie Mac, the Federal Home Loan Mortgage Corporation and Fannie Mae, the Federal National Mortgage Association (FNMA/FHLMC respectively ). Because of the perceived risk involved with granting a Jumbo Loan, higher than normal interest rates are frequently applied to them.

Freddie Mac and Fannie Mae are two of the largest corporations in the secondary loan market. They posted this year's limits back on November 30, 2004, and they are effective for loans closed on or after January 1, 2005.

This Year's (2005) Jumbo Loan Limits Are:

• 1 Family     -     $359,650 (an increase from $333,700)
• 2 Family     -     $460,400 (an increase from $427,150)
• 3 Family     -     $556,500 (an increase from $516,300)
• 4 Family     -     $691,600 (an increase from $641,650)

Note: that the maximum loan amounts for one-to-four family mortgages in the following states are 50% higher:

• Alaska
• Hawaii
• U.S. Virgin Islands

Jumbo Loan When It Relates To A VA Loan

A Jumbo Loan, when it relates to a VA Loan, is as follows (as of December 10, 2004 ).
The Veterans Benefits Act of 2004 now allows for a VA Loan amount to be equal to 25 percent of the Freddie Mac conforming loan limit. This is relative to section 305(a) (2) of the Federal Home Loan Mortgage Corporation Act for a single family residence, as adjusted for the year involved. For this year, 2005, the maximum allowed for veterans now has a ceiling of $89,912, which is 25% of the standard $359,650 conforming loan limit set by Freddie Mac.

A Jumbo Loan Option That Should Be Considered

When applying for a Jumbo Loan borrowers should consider getting an Interest-only (IO) option. Interest-only, on a loan the size of any jumbo, will free up considerable amounts of cash on a monthly basis. This money can be used for other important needs or other worthwhile investments. Please see our article on interest-only mortgage loans to better understand all of the ramifications associated with them.

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