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A jumbo loan is a mortgage with a principal balance that exceeds the lending limitations established by Freddie Mac and Fannie Mae, the purchasers and guarantors of the secondary mortgage market. The cutoff principal amount above which any loan is considered a jumbo loan is set each year. The jumbo loan is often called a non-conforming loan, and while every jumbo loan is nonconforming, not every nonconforming loan is a jumbo loan. (For example, a mortgage may be below the conforming loan limit, but involve less borrower documentation than is typically required.) A jumbo loan will generally have a higher rate of interest than a conventional mortgage. A borrower who needs to borrow modestly more than the conforming loan limit might consider a conventional mortgage and a small secondary mortgage as an alternative to the jumbo loan.
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