is over that set threshold.
You may be wondering why we need to set a threshold for mortgages in the first place. The reason is that Fannie Mae and Freddie Mac — two government-backed investment enterprises — purchase the bulk of U.S. residential mortgages from banks and other lenders for investment purposes. In other words, the lender organization loans a borrower money, and then Fannie Mae and Freddie Mac purchase that loan from the bank to then trade on the stock market. This is called a mortgage-backed security. The whole point of the government allowing this practice is to keep a steady flow of cash to the mortgage industry. This helps people buy homes, which helps the overall economy. However, if there were no limits set on the mortgages Fannie Mae and Freddie Mac could buy, eventually the market would become so overpriced that lower-middle-class Americans couldn’t afford a home. Therefore, if a lender issues a jumbo loan, the lender is on their own if that mortgage goes into default. With jumbo loans, the bank is taking on a much higher risk than with a conforming loan. How much money are we talking about when we discuss jumbo loans? On November 28, 2017, the FHFA announced that the new threshold for a jumbo loan in most areas of the U.S. would be $424,100. However, in certain high-cost-of-living areas, that number can go as high as $636,150. In other words, only very expensive homes are going to earn a jumbo loan. It used to be that getting a jumbo loan would mean a higher interest rate for the borrower. However, following the Great
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