They're back but not quite as big as they once were. Jumbo loans are appearing on the market as home prices are rising quickly in areas like San Francisco Bay, Chicago's north shore, and the Hamptons.
Figures from the National Association of Realtors show that sales are up by 38.7 percent from a year ago for homes with values between $750,000 to $1 million. For the over $1 million homes, sales are up 25.7 percent.
So guess what is making a comeback? The jumbo mortgage for loans that are more than the $417,000 limit of the federal insurance agencies, Fannie Mae and Freddie Mac. These loans were completely unavailable after the housing/credit crisis.
However, these loans are being made only to the most highly qualified buyers. That means lenders are looking for borrowers that have FICO scores upwards of 760, 30 percent equity as downpayment, numerous tax returns, and a year of mortgage payments/savings in the bank. Of course, various lenders have different requirements but they'll likely be similar to these.
Despite the strict requirements, some financial experts are predicting that the jumbo market may even do better than the overall regular mortgage market this year. The jumbo loans currently carry interest rates that are only slightly higher than conventional loans. The increasing sale in high-priced homes is making the jumbo loan necessary.
That's partly because these jumbo loans are appealing to investors. Jumbo loans provide a long-term asset with a higher return. However, these non-conforming/jumbo loans are not backed by the federal government in the way conventional loans are. With conventional loans, the government guarantees the debt that's owed to lenders so that if borrowers default, lenders aren't held completely responsible. That in turn makes it easier to get a conventional loan because the requirements are less strict and they're backed by the government.
Regardless of whether you're in need of a jumbo loan or a conventional one, experts say the strict mortgage rules are loosening just a bit for both. And with an improving housing market, the timing is right for borrowers.
So, if you're aiming to get a jumbo loan or to refinance one, here are a few tips.
Use an expert mortgage broker. The process of getting any loan, jumbo or conventional, can be very complicated. Having an expert help you through the process will save you time, energy, and, likely, money.
Closely look at your options. Today, experts say they're getting some very qualified jumbo loans because of all the strict guidelines. That doesn't mean you won't qualify. It does, however, mean that you must have your finances in order and be prepared to document everything.
Be prepared to study the interest rates carefully. Understand that while currently the jumbo and conventional loans may not differ drastically in interest rate, that may change. Typically jumbo loans carry a higher interest rate. So when going for this type of loan be prepared to shop around. Having an expert loan officer to assist with this will help you find some of the best deals.
Finally be patient and stay informed. The housing market is gaining momentum and a jumbo loan may be easier to get now than in recent years.