A Jumbo loan mortgage is a mortgage with a loan amount above the industry standard definition of the Conventional, conforming mortgage loan maximum. This maximum is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac.
Loans above the Conforming limits may be offered by servicers of these wholesale insitutions as well as Wall Street conduits who provide warehouse financing for mortgage lenders.
The loan amounts reflect average loan sizes nationwide. Jumbo loan mortgages apply when agency limits don’t cover the full loan amount. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are the agencies that purchase the bulk of residential mortgages in the U.S. They set a limit on the maximum dollar value of any mortgage they will purchase from an individual lender. As of 2007, that limit is $417,000, or $625,500 for Alaska and Hawaii.
This leaves a portion of the market to look elsewhere for placement. Other large investors step in to fill the need with maximum mortgage amounts in the range of $1,000,000 – $2,000,000. The average interest rates are typically greater than normal for Conforming mortgages, and vary depending on property types and mortgage amount.