Jumbo Loans

Pros
Jumbo loans are used when the loan amount exceeds guidelines set by Fannie Mae and Freddie Mac. As discussed earlier, Fannie Mae and Freddie Mac are federal government-sponsored investors that purchase loans on the secondary mortgage market.  Lenders selling residential mortgage loans to these entities must follow their underwriting guidelines in order to participate. 

In 2005, the limit for a one-family, residential loan was set at $359,650 in the continental U.S., and $539,475 in Alaska, Hawaii, Guam and the U.S. Virgin Islands. Any single loan that exceeds Fannie Mae’s limits is considered a jumbo loan, and will carry a higher interest rate than a conventional fixed-rate mortgage. This is a good loan if you need more money to secure the space you want and can afford it.

Cons
Interest rates are often higher on these large loans. Thus, the loan may have a higher monthly payment, and will cost more over the long run due to the interest rate. Because jumbo loans are typically considered higher-risk, the criteria for securing these loans is typically very strict, and you will need to have a higher income level to qualify.