Jumbo loan

Jumbo Loan

Jumbo loans, as indicated by their name, are larger than conventional mortgages and classified as non-conforming. The reason for the distinction, aside from their cost, is their underwriting guidelines. For some jumbo loans, the underwriting process might require getting more than one appraisal to verify the actual value of the property. And the borrower may have to undergo even more financial investigation and submit more paperwork than normal to be approved.

Because jumbo loans are for more money than the average price of a home, they carry more risk for lenders. To offset this risk, lenders who offer jumbo loans often charge a higher interest rate and may require a larger down payment than a conventional mortgage. And since fewer home buyers can afford homes valued at over $484,350, the market for jumbo loans is not as broad as it is for conventional loans.

That makes the prospect a riskier endeavor for lenders, which is reflected in the interest rate and terms of the mortgage.