More borrowers will need jumbo loans

House on sheet of bills

Jumbo loans are too big to be sold to the government-owned companies that buy about 70% of all the mortgages made by banks and mortgage companies.

That means they're not only harder to get, but more expensive than conventional mortgages.

The average cost of a jumbo loan remains about 1.5 percentage points higher than the 30-year, fixed-rate loans available to most borrowers in our weekly survey of major lenders.

Until last year the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) could only purchase loans up to $417,000.

But after the mortgage crisis struck in 2007, the sales of houses and condos priced between $500,000 and $1 million plunged even more than lower-cost homes because jumbo loans became so costly and difficult to obtain.

In some cities, that only affected the luxury housing market. But it was a huge problem in places like California, where it became impossible to finance even an average home through Freddie and Fannie.

Congress responded by temporarily allowing them to buy loans for as much as $729,750 in 224 high-cost counties.

On Jan. 1 that limit was reduced to $625,500, which means more borrowers will be forced to seek jumbo loans this year.

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