A jumbo loan is a mortgage that exceeds $417,000, or $729,750 in selected areas. Because these loans are over the Fannie Mae/Freddie Mac lending limits, they are called nonconforming loans, and you have to find a niche lender that specializes in these higher end mortgages.

Because investors perceive that jumbo loans carry more risk, these loans demand higher interest rates, more loan fees, and private mortgage insurance (PMI) premiums if the down payment is less than 20 percent of the selling price.

One strategy that some buyers use to cut these costs is to finance a first mortgage up to the Fannie Mae loan limit of $417,000 (or $729,750 in selected areas) and then take out a second mortgage to cover the balance of the purchase price less the down payment. This avoids the monthly PMI fees and keeps the interest percentage under that charged for the higher interest jumbo loans.

Even when the second mortgage has a higher interest rate, you can save money by not having to pay the PMI because the bulk of the loan is at the lower Fannie Mae interest rate. However, with current credit tightening by lenders, these loans may be harder to qualify for and may require a 700-plus credit score and a higher down payment.

The more money you put down on a jumbo loan, the better interest rate you’ll get. If possible, put at least 20 percent down. Also, check on the feasibility of selling some of your lowperforming securities and/ or borrowing against your 401(k) if you’re a first-time homebuyer.