Definition of "Jumbo Mortgage"

Diane  Harrison real estate agent
Diane Harrison, Real Estate Agent Modern Broker

Also known as Jumbo Loans, the best Jumbo Mortgage definition is something like: a mortgage whose loaned values are larger than the limits set by the two federal agencies (Fannie Mae and Freddie Mac).

But that alone is not enough to give you context to understand what are jumbo mortgages, right?

Here’s the thing: the Office of Federal Housing Enterprise Oversight sets a limit to how much mortgage companies can loan people as a way to preserve the overall financial systems health. To avoid a crash like the one in 2008 where part of the problem was exactly lending more than borrowers could repay and creating an interest bubble that suffocated the whole system. In comes jumbo mortgages as exceptions to this limit. Any loan higher than the limit recommended is considered a jumbo mortgage. What is the bar for a jumbo loan? What constitutes a jumbo loan? It depends from county to county. In most parts of America, that value for one-unit properties is of $453,100. One dollar above can be constituted as a Jumbo Mortgage.

While the metrics for approval for a jumbo mortgage are basically the same as regular loans, the bar for the approval is set much higher. The applicant must have outstanding credit, the documentation required is more demanded and the lender, after the recession, is very careful assessing the client’s risk. If you have a foreclosure in your past, for instance, chances are you won’t qualify for a jumbo mortgage.

Borrowers usually are expected to pay 5% of the loaned amount from their own pockets as down payment. That number increasingly fell down – it used to be 20%!

With the tax reform of 2018, a few things changed for jumbo loans. Now, interest on the first $750,000 in mortgage debt of a primary residence or second home is tax-deductible. For the ones who are married but filed separately, you can each deduct up to $375,000. For mortgages that were active before December 16, 2017, when refinancing the borrower can still deduct interest on up to $1 million in mortgage debt, as long as the refinance is under the balance of the original loan. Plus several details, so contact a tax professional to better advise you on your specific situation.

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