A jumbo loan is a home mortgage that exceeds the annual limit set by Fannie Mae and Freddie Mac. These two companies insure, buy, package and resell many home loans. Fannie and Freddie will not insure or buy loans unless they meet certain criteria, and one of them is size. Loans that meet all these criteria are called conforming loans.

Each fall, these companies announce the maximum size loan it will buy the following year. For 2007, the loan limit for single family homes is $417,000. Jumbo loans generally charge an interest rate that is one-quarter to one-half of a percentage point higher than the rate on conforming loans because they are harder to sell in the secondary market.

The maximum loan amount is 50 percent higher in Alaska, Guam, Hawaii, and the Virgin Islands. The loan limit is also higher for multi-family units.