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Jumbo Loans Are Gaining Popularity


Have you ever heard of Jumbo Loans? Of course many of us have heard of a fixed mortgage or an adjustable rate mortgage. Still others may have even heard of a balloon mortgage, but a Jumbo Loan? What in the world is a Jumbo Loan?

What is a Jumbo Loan?

According to, a Jumbo Loan (also referred to as a Jumbo Mortgage) is “a mortgage with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO), and therefore, not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac. OFHEO sets the conforming loan limit size on an annual basis.”

The Jumbo Loan’s Gaining Popularity

As of this current date, a loan that is more than $417,000 exceeds the conforming loan limit set by the OFHEO. This means that any loan that is larger than this amount is considered a jumbo loan.

These loans used to carry a very high interest rate because of the increased risk to the bank, but with the falling rates recently, these jumbo loans have become very enticing.

House values are down and the jumbo loan rates are at a historic low — 5,15%. For those individuals that had their eye on the mansion down the street, they feel that now is the time to strike. In fact, 1 out of every 6 house purchases this year have been jumbo loans!

Aren’t We In a Recession Here?!

My initial reaction to the high number of jumbo loans was, “I thought we were in a recession?! How is it that so many loans are for an amount that’s greater than $400,000?!”

Of course, if you live in California, you already know that $400,000 doesn’t go very far when it comes to purchasing property, so this may factor into the equation.

Secondly, not everyone has been negatively affected by this recession. Some have actually positioned themselves so well that they are thriving on the recent downturn. I understand that this is a possibility as well, so these businessmen may be purchasing large estates as well.

However, there is a third category to this equation. Those that are middle-class, but have always dreamed of living in that large estate in their neighborhood. After all, the price is lower than it’s ever been, the interest rates are low, and home prices are at their bottom, right? Well, that’s what they’re hoping.

A Message For Those Dreamers Out There

My wife and I almost started life this way. We figured, why not just buy the house that we love now so that we can enjoy it for the rest of our lives? It sounds quite logical, but in reality, it is most likely one of the worst financial decisions you’ll ever make.

I wrote an article a few months ago (Buy the Pricey House? Or the Moderate House?) that compared the cost (after all interest was paid to the bank) of a moderately priced home and a more pricey home after 30 years of payments, and the results were surprising, even to me! These homes that were only priced $95,000 from one another actually cost a difference of $234,000 after the 30 year loan (due to interest)!

The same is true for the jumbo loan houses. The interest rate may sound low at 5.15%, but if the loan is for a 30 year period, that $417,000 loan will actually cost you $819,695! That doesn’t sound like much of a deal to me.

Stay away from these jumbo loans. They’ll only keep you house poor for the rest of your life.

Have you ever heard of jumbo loans? Do you know anyone that has taken out a jumbo loan from the bank? What are your thoughts?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. I have heard of jumbo loans but don’t know anyone specifically that has taken one although I know plenty who live in more expensive houses. I would have thought that being in a recession would have done the same, but it must be that the bottom part of the market tanked more than anything causing the numbers to get skewed toward the high end.

    • If you have friends that have a house that’s valued over $500,000, then they probably have a jumbo loan. I hope the housing market is at the bottom, but this economy still has quite a lot of volatility to it.

      • Interesting and informative article. The title of this loan is enough to make me gun shy. People really need to stop living outside of their means and realize how debilitating debt truly is.

        • You are 100% correct. Why can’t we just live in normal sized houses? The average size house is now over 2,000 square feet, and the average family is 4 people. That’s a ton of space for such a small family.

  2. It’s only a matter of time before people forget the housing bubble bust and repeat history 🙁

    The key thing people need to remember is that a house is NOT an investment. A semi-risky hedge against inflation, yes, but not an investment. A big house also means more electricity to heat/cool it, more rooms to fill with stuff, and more space to clean.

    • Yep. We’ll all continue to have the urge to buy bigger and better things. I’m pretty sure I’ll be able to resist the urge to take on any more debt (I did this once already…it’s not fun), but I’m not sure the rest of the population will be able to. We’re a spoiled nation, and it’s going to ultimately lead to our downfall…

  3. Many people are always looking for ways to have more than they can really afford. They don’t care about the cost in the long run and are only interested in what it will cost them per month. They also forget about all of the other expenses that come along with it.

    • I have another friend that is very similar to this. He’s always talking about upgrading his home… after all, it’s only $50 extra a month. I hope he will change his ways soon and understand that it’s not about the payment, it’s about your net worth. I’ve tried to tell him, but some people don’t want to listen…

      I’m glad you have your head on straight, Sharon. I always enjoy reading your comments! 🙂

  4. @Brave New Life: I’m not sure if it’s even “a matter of time” because where my sister lives, they are already giving out loans with 100% financing to people that we know are struggling to make their current credit card payments. So I’d say, the repeating history is already happening. Albeit, hopefully on a smaller scale for now?

  5. 400k really doesn’t go far in northern CA. The housing price is ridiculous there, it’s one of the reason why I don’t want to move there.

    • My wife and I just took a vacation across the U.S., and you’re right! California is crazy expensive! Our hotel alone cost $300 a night! I can’t imagine what property is valued at!

    • My wife and I are doing the same thing, except we plan on paying off our loan in less than 5 years! I can’t wait to get started.

  6. I hope people learn something from the current recession and don’t try to live way above their means. I also hope the banks have learned something too and actually enforce a strict loan application process… Thanks for sharing on jumbo loans.

    • I was hoping that too, WOF, but 1 out of 6? I can’t believe there are so many jumbo loans in America this year! People my have a decent income, but if they are so rich, why don’t they just pay for these houses with cash rather than a 30 year loan with massive interest? It’s perplexing…

  7. I had not heard much about jumbo loans, but have encountered many people who have overextended themselves thinking that their house was an investment, but as a gentlemen earlier commented – that is not the case.
    We shall see how this whole “recession” thing pans out in the next year or so.
    Thanks for sharing your insights.

    • Do you remember the days of spiking property gains? Who would have thought so many of us would now not consider a dwelling to be an investment? But, by considering it a dwelling and a dwelling only, we can now purchase within our means and become rich through other avenues. There is always a industry that is on the rise, no matter what the state of the economy. If you position yourself on that upward momentum, you will do well. Thanks for the comments.

  8. I am new to this sight and this is the first time i heard Jambo loans, but i heard to my friends about mortgage and all that for me it’s better to have enough what i have than having a lot which you buried with dept.and about jombo loan it’s kind intriguing this to me.

    • Welcome to the site Katrinna! You can probably guess that I’m against any form of debt, and jumbo loans equal huge debt! Stear clear of these and get the modest house. In 10 years, you’ll certainly be glad you did.

  9. Yeah, the 30 years is the important factor which multiply the debt significantly. I believe we can never enjoy our life with the 30 years debt. So, as you said, we should avoid it.

    • You’re right Dana. With any 30 year mortgage, you can pretty much plan on paying double for you house than what the sticker price was (since half of it is interest payments). Pay off your house as soon as you can and you’ll be much happier!

  10. I had never heard of these before, very interesting!

    • I guess it only makes sense. The more the bank is going to lend you, the more they’re going to want in return!

  11. Jumbo loans are quite common in areas of the country a high cost of living.

    I know a bunch of people that have taken jumbo loans, but the thing is, many of them could truly afford such a loan. A few people couldn’t, and are paying the price. Thing is, how “afford” is defined in my world is different from how a mortgage broker or overeager homebuyers would probably define it!

    In my view, you guys made a great move by avoiding such a loan as you indicated. Buying the house you love now sounds alluring, but best to buy the house you can truly afford now – if buy at all. Reading your blog, I’m sure you’re making all the right moves so far anyway.

    • I know that most advisors suggest purchasing a home that’s less than 2.5 times the household’s yearly income, but I think it’s a much better plan to keep the purchase within your yearly income (in other words, less than 1 times). This way, the family could pay off the house in less than 10 years and spend far less on interest. It’s a far better long-term plan.

  12. Good thing is, Jumbo loan restrictions are super tight right now. Which means, less idiots will get these thank gosh!

    Anyone that jumps into a big loan after 2008, is well, a friggin’ idiot!

    Just my take.

    • Well said! I am glad that banks are being a little more careful, but there are still people that are trying to get these jumbo loans that really shouldn’t be.

  13. Just seeing the world “jumbo” in front of the word “loan” makes me cringe. (Kind of like “balloon” “payment”, blech)

    You were very smart to not buy a huge home, just because you could. Most people these days can’t seem to resist.

    • Ha! Makes me cringe too! I’m glad that we’re taking the route we are and keeping our expenses low. Plus, we’ll be able to pay off our house in 5 years or less! 🙂

  14. Ugh. Jumbo loans. When I worked in mortgage, we mortgage professionals always discussed the cons about jumbo loans with our customers. You take on ten more years to pay off, and you end up paying out a ton more in interest. Definitely not advised!

    • What I can’t believe is that people still go through with them! Well, I guess if you let yourself fall in love with a house or lifestyle, then it happens easier than you might think.

  15. After reading rich dad poor dad, I see my house as a liability and not an investment. So the less money it costs the better, while I meanwhile invest my money elsewhere.

    • You’re right Alice! I read the same book, and while a home may increase in value, it does not earn you any income during ownership, which makes it a liability. Thanks for the comment Alice! 🙂

  16. Jumbo loans are gaining ground and when the FED lowed the cap we have seen even more!!

    • Stinkin jumbo loans….I can’t believe people are still borrowing so much! Yes, your job may earn you big bucks, but it might not be around forever! Be smart and live frugally. It will pay off in the long run.

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