What Is The Definition of a Jumbo Mortgage?

What is the definition of a jumbo mortgage? The answer may not be what you think it is at first glance.

What Is The Definition of a Jumbo Mortgage?

As strange as it may sound, the definition of a jumbo loan has everything to do with the government. Our country is considered the wealthiest in the world because we have a strong middle class. The basic foundation of wealth for the middle class is homeownership. For those who are less well off or ranked near the bottom of the middle class, homeownership is a wealth building tool for accumulating wealth and moving up in the world. Our government knows this and takes pretty drastic steps to help out.

There are various government and quasi-government agencies that are set up to facilitate homeownership for Americans. The government wants us to own home. Heck, it practically begs us to buy. The method it uses to do this is by using its agencies to force lenders to give out loans as fast as they can. Various government agencies from HUD to the VA and quasi-government corporations such as Freddie Mac and Fannie Mae are charged with the task of buying loans from lenders or guaranteeing their repayment if a borrower defaults. Basically, the government takes the risk out the equation for mortgage lenders.

In exchange for this, the government requires certain things. The primary issue is the nature of the borrower, to wit, the goal is to provide financing to people that lenders otherwise may not touch. In practical terms, this means the government will only provide a safety net to lenders for loans less than a certain amount. Each agency and group is different, but the maximum loan ranges from $230,000 to $415,000 as of the writing of this article. If a loan fits within this limit and others, it is considered to conform to the government requirements. It is called a "conforming loan".

But what if you need to borrow more than a couple hundred thousand dollars? In many parts of the country, like California, you can't buy anything for $250,000. Well, the government is not going to raise its limits, so your loan needs do not conform to the government regulations. As a result, your loan is considered a "non-conforming loan". In the real estate industry, this type of loan is better known as a "jumbo loan."

What is the definition of a jumbo loan? It is any loan that exceeds the maximum borrowing limit for loans guaranteed or secured by a government agency. To find out more, you should get a free, no obligation consultation with a mortgage professional.

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