What is a nonconforming loan that exceeds the lending limits established by Fannie Mae and Freddie Mac referred to as?

A nonconforming loan that exceeds the lending limits established by Fannie Mae and Freddie Mac is referred to as a Jumbo Loan. These loans are not eligible for purchase by these government-sponsored enterprises (GSEs) because their amounts surpass the maximum thresholds set by them, making them riskier in the eyes of the secondary market.

Jumbo Loans are often sought by borrowers who need to finance higher-priced properties, as they allow for larger sums of money to be borrowed. Because they are not backed by Fannie Mae or Freddie Mac, these loans typically come with stricter credit requirements and larger down payment expectations, reflecting the increased risk to lenders due to the lack of GSE backing. Understanding this helps highlight why Jumbo Loans play a crucial role in areas with elevated property values, providing an essential option for certain borrowers in the mortgage market.