In the United States, a Jumbo Mortgage is a mortgage loan that is related to an amount above the conventional conforming loan limits set by Fannie Mae and Freddie Mac. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits don't cover the full loan amount, the loan is referred to as a "Jumbo Mortgage".
As of January 2018, Jumbo loans begin at $529,001 in the state of Colorado, each state/county will vary ever so slightly.
Jumbo mortgage loans are a higher risk for lenders, mainly due to their larger size rather than credit quality of the borrower. This is because if a jumbo mortgage loan defaults, it may be harder to sell a luxury residence quickly for full price. Luxury prices are more vulnerable to market highs and lows in some cases. That is one reason lenders prefer to have a higher down payment (minimum 20% down) from jumbo loan seekers. Jumbo home prices can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may require two appraisals on a jumbo mortgage loan when the loan is over $1,000,000.
The interest rate charged on jumbo mortgage loans in the past couple of years, have been equal to or lower than, conforming loans. Most consumers try to avoid a jumbo loans, due to the additional assets required for “reserves” and additional documentation a jumbo loan will require, in comparison to, a conforming loan. Investors are aware of the hesitation by borrowers and in turn have reduced the interest rates associated with jumbo money to try and attract more consumers to the jumbo market.