Jumbo Home Loans

Understanding Mortgage Terminology: Conventional vs. Jumbo Loans

Although lenders' lingo can be confusing when you are shopping for a new home loan, it's important to understand the terminology in order to find the best mortgage. One of the first questions your lender will ask you when you are applying for a home loan is whether you are looking for a conventional or jumbo home loan.

What is a Jumbo Home Loan?

Mortgage lending is regulated by "Fannie Mae," which is a nickname for the Federal National Mortgage Association (established by Congress in 1938 to regulate the mortgage lending industry). Once a year, in October, Fannie Mae sets limits on the dollar amount that lenders should give out for a mortgage, based on the Federal Housing Finance Board's single-family price survey.

Currently, Fannie Mae's home loan limit is $417,000 (expect in Hawaii, Alaska, and the Virgin Islands, which have a 50% higher limit). Mortgage loans that are at or below $417,000 are called "conforming home loans" and loans over $417,000 are called "jumbo" or "non-conforming home loans."

Other Differences between Jumbo Home Loans and Conforming Home Loans

Generally, you can save approximately .5% in interest rates if you obtain a conventional home loan rather than a jumbo home loan. Some lenders have stricter qualification guidelines for jumbo home loans than for conventional loans as well. This is important to know, whether you are seeking a loan for a new home purchase or a refinance of an existing home loan.

Should you need a home loan that is higher than the conforming loan limit, you will want to check with your mortgage advisor to see if a jumbo home loan is the best option. When the prime rate is low, a conforming loan combined with a home equity line of credit (HELOC) may actually be a cheaper--and more flexible--mortgage loan for you.  

Sources
Fannie Mae
Sheryl Landrum, Senior Loan Officer, First Capital Mortgage of San Diego, Bonsall, CA.