Fannie Mae and Freddie Mac have set the conventional conforming loan amounts for mortgage loans in the United States. These loan amounts apply to all types of home mortgage loans including:
Fixed Rate
Adjustable Rate
Negative Amortization
Interest Only Payments
If a loan exceeds these maximum loan amounts set by Fannie Mae and Freddie Mac it is considered a Jumbo Loan, also referred to as non-conforming. The same loan programs are available for these jumbo loan amounts including:
Fixed Rate Jumbo Loans
Adjustable Rate Jumbo Loans
Negative Amortization Jumbo Loans
Jumbo Loans with Interest Only Payments.
Jumbo loan amounts are amounts that exceeded the following parameters:
Loan amounts greater than $417,000 are considered non-conforming on properties categorized as single family residence.
Loan amounts greater than $533,850 are considered non-conforming on properties categorized as two (2) units. (duplex).
Loan amounts greater than $645,300 are considered non-conforming on properties categorized as three (3) units.
Loan amounts greater than $801,950 are considered non-conforming on properties categorized as four (4) units.
Why are non-conforming (jumbo) interest rates higher than conforming mortgage interest rates?
Jumbo Loans are over the conforming loan amount, which means they cannot be packaged and resold to Fannie Mae and Freddie Mac, which are the largest purchasers of mortgage loans in the United States. In the past many banks and lenders would finance jumbo loans and then resell them to wall street investors on the secondary market. Many investors in the secondary market are no longer buying jumbo loans.
These loans are viewed as a higher risk than conforming loan amounts. Because of this risk, borrowers can expect a higher interest rate.
Because it is becoming increasingly difficult for many banks and lenders to sell jumbo loans on the secondary market; investors, banks that lend money from deposits, portfolio lenders, and private money have become the main source of financing for them.
The secondary market is stilll buying non-conforming loans, but they require much tighter guidelines than they did in the last year. Borrowers who have strong credit profiles and liquid assets are still able to acquire financing with low rates and relatively high loan to values.
