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What are the Alternatives to Jumbo Loans?

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The primary alternative to a jumbo loan is a smaller, traditional loan. These loans come fit into two of four available categories, as described below.

• Government vs. Conventional: Government loans are funded by federal organizations such as the Federal Housing Administration or the Department of Veterans' Affairs. Non-government lenders, on the other hand, offer so-called conventional loans.
• Fixed Rate vs. Adjustable Rate: Fixed rate mortgages have a set interest rate for the entire term of the loan, so you can be relatively certain about the size of your payments. Some fixed rate mortgages are called "balloon" loans because they require a large lump sum payment at the close of your loan term. Adjustable rate mortgages, on the other hand, fluctuate based on the economy, so your payment is unstable, but you can save money over time.

Of course, jumbo loans also fit into these categories, but most lenders will refer to the above loans, and then discuss a jumbo loan as a separate category. To avoid a jumbo loan, then, you will need a smaller loan from the above categories. Either borrow less money (which could be a good exercise in financial restraint) or break your jumbo loan into multiple mortgages.

Many lenders will, in fact, allow you to sign a piggyback mortgage, which is a small second loan--just large enough to allow you to keep your first loan under the jumbo loan limits. You have higher costs because you're closing two loans instead of one, but you can avoid the higher interest rates of jumbo loan.

On the other hand, you may already have a jumbo mortgage, in which case it might be possible for you to convert it to a regular mortgage. The Fannie Mae/Freddie Mac guidelines have risen in recent years, so a loan that was jumbo when you took it out may no longer be jumbo. If this is the case, consider refinancing your loan; you'll have to pay refinancing costs, but you'll reduce your interest rates to the regular loan rate.

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