Jumbo Loans Explained

Loan Officer helping a member look at paperwork

By Ted Lyons, Brighton Branch Manager

There are times when the name of something really captures its essence and that is certainly the case with the term “jumbo” mortgage. The name conveys the concept that something is really big – and when it comes to mortgages, a jumbo mortgage refers to a loan that is so big that it gets treated differently just because of its size alone.

Specifically, a jumbo mortgage is one that is so large that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) won’t buy them from a mortgage lender just because of the loan amount. Each year those government-sponsored entities pump trillions of dollars of liquidity into the mortgage market by giving mortgage lenders a guaranteed place to sell a mortgage to replenish the funds that they can then use to make new mortgages. Because those mortgages are underwritten to rules that everyone understands and agrees to follow, it makes it possible for them to be packaged up in bulk and sold or transferred on a secondary market. But each year, Fannie and Freddie publish loan limits that they will buy individual mortgage loans up to, and no higher ($510,400 in Michigan in 2020).  When a loan exceeds those amounts, you have a jumbo mortgage.

Accordingly, jumbo mortgages have no set aftermarket and there are no specific underwriting rules. This makes jumbo mortgages the Wild Wild West of mortgage lending. There’s no specific rate they can vary significantly. As a result, it is perhaps even more important that when you are looking to obtain a jumbo mortgage that you know and trust your lender. Do you have experience with them or are they the result of a search engine query?

At Michigan First Mortgage, we’re happy to say that we do jumbo mortgages. More importantly, we’ll help you to understand the loan limits when you apply for a jumbo mortgage and we’ll ask questions to help you make sure that you need one. Sometimes homebuyers are entering into a jumbo mortgage while being just a few thousand or even hundreds over the Fannie/Freddie loan limits.  In that situation, it pays to have a lender you can trust who can help you identify your options.  Can you put just a little more down?  Can you split the total amount you need to borrow into two loans so that neither is a jumbo?

These questions, and many more, are the ones that we help members learn about so that they can make the best decision for themselves. If you find yourself in a position where you might be looking at a jumbo mortgage, contact our team and we’ll help by laying out the facts and walking you through the process every step of the way. The mortgage solution that you use to buy the home of your dreams for you and your family will be as solid and reliable as the home itself.