This reward comes in the form of lower interest rates, including aggressive interest rates on Adjustable Rate Mortgages (ARM).
This excerpt from the Wall Street Journal last week brought national attention to this quiet shift:
In the past two weeks, the relationship has flipped, a combination of interest-rate volatility, government policy and banks flush with cash that are enjoying lower funding costs, making jumbo mortgages an attractive investment for them.
The average 30-year fixed-rate conforming mortgage was at 4.73% last week, according the Mortgage Bankers Association, compared with 4.71% for the average jumbo 30-year fixed-rate mortgage.
Welcome Back Jumbo
2007 was a really bad year for real estate and the mortgage industry. When toxic loans began to implode and home values plummeted, Jumbo loan holders were probably hit hardest.
It’s not that Jumbo loans are so expensive, because normally they’re only a little higher than traditional or guaranteed financing (like FHA, VA). The challenge that Jumbo homeowners and homebuyers had is that there were very few investors lending to Jumbo borrowers.
Finally, we are seeing signs of private investors coming back into the market and not being afraid to loosen the purse strings and allow Jumbo borrowers to have access to the same historic low interest rates as other borrowers.
How Do I Know If It’s a Jumbo Loan?
Jumbo financing is required when the amount borrowed exceeds conventional, and high balance conventional limits.
FHA Loan Limits are determined by County and max out at $729,750 in high cost counties. Any loan amount greater than the maximum loan limit would be considered Jumbo financing.
If you would like to look up you FHA loan limit yourself, you can find loan limits here.
Fannie Mae loan limits are not quite as mixed as FHA. For the most part, $417,000 is the conforming loan limit for a single family home, with the high balance (expensive counties) limit capped at $625,500.
Any loan above the conforming, or high balance conforming limit is considered Jumbo financing.
Qualifying for a Jumbo Loan
Jumbo home loans are definitely more strict than your traditional FHA or Conventional financing options.
It is not unusual for Jumbo Guidelines to require:
- A larger down payment/equity
- Higher credit scores
- Lower debt to income ratios
- A minimum of 6 months reserves
Self Employed Borrowers expect to need 2 years tax returns with all schedules.
Qualifying guidelines for Jumbo financing are determined by the lender offering the money for the loan. While Jumbo underwriting is not as consistent as being able to run an automated approval software, you will find that for the most part, lenders will require relatively the same qualifying criteria.
If you have a Jumbo loan now, or are thinking about buying and need Jumbo financing, your timing couldn’t be better!
As a direct lender in California we can confirm that indeed Jumbo rates offer some of the most aggressive pricing we’ve seen in some time.
If you have questions, need a value check, or would like to get a second opinion, leave me a comment, shoot me an email or give us a call.