A jumbo loan is typically any mortgage loan that exceeds the conforming loan limit which ranges from $417,000 to $1,526,450 for the year 2010. Several factors apply toward the determination of a non-conforming or jumbo loan amount. Before getting into the factors, the use of “conforming” and “non-conforming” should be addressed. A conforming mortgage is one that is eligible for purchase by a GSE or government-sponsored enterprise (i.e., Fannie Mae). In contrast, a non-conforming loan would not be eligible for purchase by a Fannie Mae and may also be referred to as portfolio loans or non-salable loans.
For example, a mortgage loan on a single family (1-unit) property in Dallas, Texas that did not exceed $417,000 would be eligible for purchase as a conforming loan. While in comparison, the same house, if it were picked up and relocated in Maui, Hawaii, would be eligible for a maximum conforming loan amount of $790,000. Granted, loan amount limitations are not the only guidelines that determine if a loan is eligible for purchase by Fannie Mae. Other guidelines (referred to as underwriting guidelines) are applied to the qualification of a conforming loan. A few examples would include the loan-to-value ratio, debt-to-income ratio, and credit history including a minimum qualifying credit score.
The first factor in determining an eligible conforming loan amount is the number of units developed on the property. Specific to residential mortgages that do not fall into the category of construction financing, the minimum number of units is one and the maximum number of units is four. Any property containing more than four units is not eligible for conforming (residential) financing. A one unit property covers attached and detached single family dwellings (including condominiums, co-ops, duets, townhomes, and manufactured/mobile homes classified as real property – real property refers to the manufactured home being permanently affixed to land). Two unit properties are commonly referred to as a duplex; three units a tri-plex, four units a four-plex, quadplex or quadruplex.
The second factor is the location of the property. The chart below (from Fannie Mae) shows that properties located in Alaska, Guam, Hawaii and the U.S. Virgin Islands have higher conforming loan limits than in the 48-contiguous states, D.C., and Puerto Rico – which is why the Texas example above was limited to a maximum loan amount of $417,000. It should also be noted that although the maximum high-cost loan amount (for a 1-unit property) that could remain eligible for conforming financing is $938,250, for the year 2010, the maximum eligible area is Honolulu, Hawaii, with a maximum conforming loan limit of $793,750.
Maximum Original Principal Balance for Loans Closed in 2010UnitsContiguous States, District of Columbia, and Puerto RicoAlaska, Guam, Hawaii, and the U.S. Virgin Islands** GeneralHigh-CostGeneralHigh-Cost*1$417,000$729,750$625,500$938,2502$533,850$934,200$800,775$1,201,1503$645,300$1,129,250$967,950$1,451,9254$801,950$1,403,400$1,202,925$1,804,375
- The limit may be lower for a specific high-cost area; use the Loan Limit Look-Up Table above to see limits by location. High-cost area limits may also vary depending on the loan origination date.
For most of the contiguous US, the single-family residence conforming loan limit is $417,000. The term “Jumbo” is more correctly termed “ non-conforming” meaning that amounts above this do not conform to fannie mae or freddie mac guidelines. The limit is higher for 2, 3, and 4 unit properties. In addition, certain markets are designated as “high cost” and will allow “expanded” conforming limits up to $729,750. Loan limits are established on an annual basis and are historically the same for Fannie Mae and Freddie Mac.
Remember that this refers to the loan amount, not property value of sales price. When a loan is “Jumbo” or non-conforming, the rates are generally higher because the loan cannot be sold through the Fannie Mae or Freddie Mac pools. The spread between conforming and Jumbo rates has widened as the market has had less secondary market buyers over the past 2 years.
As a reference, go to the Fannie Mae link for the loan limit historical chart: http://www.fanniemae.com/aboutfm/pdf/historicalloanlimits.pdf;jsessionid=3XBQETWJA2SPRJ2FQSHSFGQ I hope this helps.