A jumbo mortgage is a mortgage with a loan amount above the industry-standard definition of conventional conforming loan limits. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac.
Loans above the conforming limits may be offered by seller servicers of these wholesale institutions, as well as Wall Street conduits who provide warehouse financing for mortgage lenders. The loan amounts reflect average loan sizes nationwide. Jumbo mortgages apply when agency limits don't cover the full loan amount. Fannie Mae and Freddie Mac are large 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 2006 the limit is $417,000, or $625,500 in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
Other large investors, such as insurance companies and banks, step in to fill the need, with maximum mortgage amounts going to the $1 million or $2 million range. A loan in excess of $650,000 is referred to as a super jumbo mortgage. The average interest rates on jumbo mortgages are typically greater than is normal for conforming mortgages, and vary depending on property types and mortgage amount.
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