Loan Limits

• In most parts of the mainland states, the District of Columbia and Puerto Rico, if you’re looking for a mortgage loan exceeding $417,000, in 2010, to buy a single-family unit, you would require a jumbo loan. In certain areas that the Federal Housing Finance Agency considers “high-cost,” based on median home price, any loan higher than $729,750 on a single-family unit falls in the jumbo loan category. Similarly, limits are set for two-family, three-family and four-family units. For a four-family unit in a high-cost area, a loan amount would have to be higher than $1,403,400 to trigger a jumbo classification.
  
  

Exceptions

• In the states of Alaska and Hawaii, as well as in Guam and the U.S. Virgin Islands, the conforming loan limits are different. In general, a loan on a single-family unit has to exceed the $625,500 mark to fall in the jumbo loan category. On a four-family unit, a mortgage loan that crosses the $1,202,925 limit is a jumbo loan. In high-cost areas in these places, the conforming loan limit ranges from $938,250 for a loan backed by a single-family unit to $1, 804,375 on a four-family unit.
  
  

Qualifying

• After the credit crunch of 2007, lenders have tightened their lending standards for all sorts of mortgage loans. And jumbo loans, which involve large amounts of money, are no exception. If you’re looking for a jumbo mortgage, expect to put down at least 20 percent of the home purchase price as the down payment. Lenders also look for a good credit score of higher than 700. Prepare to document your income and show that the monthly loan payment as a percentage of income does not cross a safety threshold set by the lender.
  
  

Interest Rates

• Banks are mostly holding on to jumbo mortgage loans in their portfolios following the 2007 credit crunch. This means that they face the risk that interest rates will move against them. Therefore, they are more likely to offer adjustable rates on jumbo loans. For instance, a 5-1 adjustable-rate mortgage (ARM) involves an interest rate that is fixed for five years. After the five-year period, the rate adjusts depending on the current market rates. Another such mortgage is a 7-1 ARM.
  
  

Alternatives

• Since interest rates on jumbo loans are generally higher than the rates on loans that conform to Fannie and Freddie limits, some borrowers try to avoid taking a jumbo loan if possible. One way of getting around this is to take out a “piggyback” second mortgage loan in addition to a primary loan. This breaks up the loan amount into two loans and may be worth the maneuvering if the payments on two conforming loans work out to be lower than the payment on one jumbo loan.