Q&A: Jumbo mortgage loans explained

I heard that the rules for jumbo mortgage loans are kind of confusing. Is there one definition for “jumbo loan” or does it vary by situation?

Government-sponsored mortgage companies Freddie Mac and Fannie Mae determine what limits will create the Jumbo versus regular mortgage amounts each year.

You might wonder why it is even necessary to determine what a ‘jumbo loan’ is compared to a regular loan.
The reason is that Freddie Mac and Fannie Mae purchase the bulk of your financial institution’s mortgage loans so that there is enough actual money running through the system to keep the economy going.
If they did not do this, your bank might have just a small amount of money to issue in loans each year which would make lending standards impossibly stringent and would hurt the housing and other sectors.
Jumbo mortgage loans exceed Freddie and Fannie limits.
Jumbo loans are a risky proposition because it’s very difficult to unload a high-priced property quickly if the borrower does not pay and the lender is forced to foreclose on it.
Because of this adjusted risk, there may be more stringent requirements issued by your bank in order for you to get a jumbo loan approved. In addition, mortgage rates may be higher, in order to help compensate for the additional risk, so keep that in mind as you compare mortgage rates.