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Jumbo Loans

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About Jumbo Loans

jumbo loan home
A Jumbo Loan is a mortgage loan that exceeds the amount of a conventional conforming loan limit. Fannie Mae and Freddie Mac set the standard for conventional loan limits every January based on average market prices. Jumbo loans are “non-conforming”—they do not conform to the guidelines set forth by Fannie Mae and Freddie Mac. The jumbo loan threshold varies depending on the location of the property, but generally jumbo loans are those that are above $417,000 (except in high-cost areas where the limit is $625,500). These loans are designed to help people borrow large amounts through a financial service.

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Conventional Loans

Conventional Loan Programs

About Conventional Financing

Conventional Loans are mortgage loans which are not guaranteed or insured by the federal government. Instead, these mortgage loans conform to the guidelines and national standards set forth by government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

These stockholder-owned corporations were created by the government to buy and sell conventional mortgages. They set the maximum loan amounts, as well as guidelines for borrowers’ income, credit scores, and down payments. Conventional loans can be conforming or non-conforming. Conforming loans follow the terms and conditions established by Fannie Mae and Freddie Mac, while non-conforming loans (also known as jumbo loans) exceed the lending limits. Depending on market conditions and trends, about 35-50% of mortgage loans are conventional.

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Freddie Mac and Fannie Mae Not Going Anywhere Fast

Freddie Mac and Fannie Mae Not Going Anywhere Fast

President Obama visited Arizona on August 6, 2013 to tout the housing industry’s recovery. He also endorsed a Senate effort to dismantle Freddie Mac and Fannie Mae in order to allow the private sector to begin backing mortgages.

Mr. Obama’s endorsement of Corker-Warner has garnered major press from critics, financial experts and analysts – and buried the real question. Is the U.S. housing market on the mend? (I’ll talk about Freddie and Fannie in a bit.)

Yes, we’re in recovery – a cautious one

If you’re like me and you walk around your neighborhood, you may be seeing evidence of the housing market on the upswing. People have their homes up for sale and houses are selling – always a good thing!

Even better, you can see people doing home improvements. To me, this signifies that homeowners are optimistic; few people will do improvements if they believe their home values will go down.

But, activity in your neighborhood or mine isn’t the best indicator of a broad recovery. For that, you want to look at two things: the number of new jobs and home prices.

You can find the monthly jobs report at the Bureau of Labor Statistics. Job openings increased for July (+162,000 new jobs) with unemployment edging down slightly to 7.4%.

In conjunction with new jobs, home prices are rising. According to the Case-Shiller Home Price Indices, home prices rose for Q1 2013 – and continue to rise. Their latest data show prices rising 2.5% and 2.4% in May for their 10- and 20-City Composites.

One thing to note: Many news agencies rely on data published by the National Realtors Association. I personally don’t trust their data, especially after they were caught a few years ago “spinning” their numbers. If you want data driven, unbiased information, use the Case-Shiller Indices.

Given that the U.S. is creating new jobs, coupled with the rise of housing prices, it’s safe to say the housing industry is in recovery mode. But I’ll qualify that – we’re in a cautious recovery. A geopolitical or other unexpected event can bring the market to its knees pretty fast.

Can the U.S. housing market survive without Freddie and Fannie?

The idea of closing down Freddie Mac and Fannie Mae, two huge federal government-sponsored entities that taxpayers bailed out in 2008, sounds good – but as many analysts and experts have pointed out, it’s not that easy.

The reason lenders provide mortgages is because they know the federal government guarantees them. If Freddie and Fannie were eliminated, consumers would have far fewer options for obtaining a mortgage as interest rates and costs would go up. Home buyers would need larger down payments – forcing many people out of the market.

Two, we have too many industries dependent on the housing industry – everything from new construction to consumer goods (think washers and dryers). Eliminating Freddie and Fannie – and by extension, limiting the availability of mortgages – would dramatically impact the market in ways we can’t even foresee.

In my opinion, it’s easy to introduce legislation – and easy to say the U.S. should do this or that. But the housing industry – and its associated industries – plays a large role in the U.S. economy. Reforming Freddie and Fannie may make sense, but trying to eliminate them is a whole other kettle of fish – something President Obama learned with Guantanamo Bay early in his presidency.

If you’re considering buying a home, don’t worry about Freddie and Fannie. Any change that takes place won’t happen anytime soon. For now, focus on these three things: Interest rates are still low, inventory is good, and prices are still much lower than they were in 2008.

If you have questions – or you’re looking for a mortgage – give us a call. We’re here to help you.