When your home mortgage is above a certain treshold ($275,000 in 2001), your mortgage is considered a jumbo loan. If your loan is lower, it is a conforming loan. Thus, jumbo loans are sometimes known as non-conforming loans. Jumbo loans typically are harder to qualify for than conforming loans, and also have higher interest rates.

The distinction comes from the secondary mortgage market, where companies like Fannie Mae and Freddie Mac buy mortgages from primary lenders. This then frees up capital so that the primary lenders can loan out more money for home purchases. This allows people to buy houses. Fannie Mae and Freddie Mac, however, are federally regulated, and can't buy mortgages above a set amount, which is revised every year. The loans that are above this limit are jumbo loans. Since banks can't sell these mortages to Fannie Mae and Freddie Mac, they are less desirable to the bank. Therefore, banks make it more difficult to qualify for jumbo loans, and have higher interest rates, to make up for the increased risk they assume by loaning you so much money.