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Jumbo Mortgages loans are commonly utilized in the United States when loans exceed the conforming loan limits. Many home buyers successfully use jumbo loans as part of a long-term financial strategy. Careful consideration is highly recommended before seeking jumbo mortgage financing. Non-conforming mortgages are a higher risk for both the lender and the borrower than their conforming alternatives, but they do offer special benefits in unique situations.

A jumbo mortgage is a loan that exceeds the limits of a conventional conforming loan. The twin agencies of Fannie Mae and Fannie Mac establish the annual standard of loan limits and guidelines. Any loan that does not meet these limits or guidelines is considered to be non-conforming. Because conventional loan limits reach a cut-off point, larger and more costly home purchases are sometimes not accommodated by them, which is why jumbo loans come into use.

A consequence of jumbo mortgage financing is significantly elevated interest rates, which are necessary to provide an incentive to the lender to accept the higher risk associated with jumbo financing.

Traditionally, non-conforming loans were reserved for luxury residences in high-end districts; however, within the last decade, this type of loan gained a new prominence, and become more commonly utilized by middle-class families, typically in major metropolitan city areas. Some in an attempt to counter the rise in home prices used the loan. In 2007, as the American Housing Bubble began to collapse, the increase in foreclosures made non-conforming loans too dangerous for lenders to continue to justify, which only strained the housing market more severely and augmented it’s collapse as home owners became incapable of providing for their payments. By 2010, almost one in every three non-conforming loan had been reduced to a “seriously delinquent” status.

The role non-conforming loans played in the creation and collapse of the Housing Bubble was not necessarily a product of their use. More so, it was a product of their misuse. Non-conforming loans present a higher danger, which both the lender and borrower need to accept and accommodate. The cases requiring there uses are limited. The majority of people would receive greater benefits from investing in a lower-cost home using a conforming loan. However, there are situations in which the careful and considerate application of this alternative method is encouraged.