The housing bubble that has been driving up prices across the whole country has left house buyers looking for alternative ways to finance their dream home. Unfortunately, many starter homes in some areas of the country have prices that leave buyers in sticker shock. Many of these buyers find that jumbo loans are the only way they can finance a new home. A jumbo loan, also known as a non-conforming loan, is a residential or commercial mortgage loan that does not conform to the guidelines set by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. Actually, it is a loan that exceeds the limit and guidelines that Fannie Mae or Freddie Mac require for loans they are going to purchase from mortgage originators.
Due to the higher risk associated with these large loans, a jumbo loan usually has a higher interest rate than conforming loans do. One way lenders get around the higher rates is by breaking up the jumbo loan into two separate loans. The advantage of the jumbo loans is that it enables a buyer to finance a primary residence or investment property in markets with high prices.
