The Home Buyer's Korner

Information presented should be used for educational purposes only.

January 27th, 2017

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Jumbo Home Loans

jumbo-mortgage-loans-interestA number of lenders offer jumbo mortgages, although the requirements are much stricter than they were prior to the real estate bust of 2007. Jumbo mortgages are home loans that exceed FNMA/FHLMC conforming loan limits.

Conforming loan limits vary by area and in most housing markets it’s $417,000, but in high cost areas the limits are higher, sometimes much higher.

Before the real estate bust of 2007, lenders steadily relaxed their standards on jumbo loans to compete for customers and home buyers easily got jumbo mortgages without having to verify their income stated. Many lenders gave jumbo loans to home buyers with as little as five percent down.

Around mid-2007, many lenders became concerned about the existing portfolios and left the jumbo home loan market, but jumbos mortgage have gradually returned, however they’re often a lot more restrictive.

To qualify for a jumbo mortgage today, you should expect:

  1. To make a down payment of at least 20 percent for a purchase.
  2. To document your income.
  3. To get an adjustable-rate loan, because fixed-rate jumbos are relatively rare.
  4. For your monthly mortgage payment to be no more than 38 percent of your income before taxes.

Home Buyers who meet those qualifications can often find a jumbo mortgage lender willing to assist them in with their home financing needs at attractive rates.

As with any mortgage, it pays to shop around for a jumbo home loan. Most jumbos nowadays come from big banks that keep the loans on their books instead of selling them, but often are available through mortgage brokers who have broker relationships with the larger banks.

In that jumbo mortgages are retained as portfolio loans bank makes a profit by charging higher interest rates on their jumbo mortgages than they pay on their customers’ deposits. And, if you have a simple interest bearing saving account you’ve come to realize interest rates on deposits are low nowadays, so banks can profit on jumbo mortgages even when they offer them at low rates.

However, rates paid on deposits will rise someday, so most banks only offer jumbo ARMs whose rates will rise when rates paid on deposits go up. The most popular jumbos are 5/1 ARMs, which have an introductory rate that lasts five years and then adjusts annually thereafter. Another popular option is the 7/1 ARM. When the adjustment period comes, most of today’s jumbo ARMs will move in relation to the one-year Libor, although some are indexed to the one-year Treasury.

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