Jumbo mortgage lending picked up appreciably in 2012 and is
expected to grow even more in 2013, offering better deals for
borrowers buying high-end houses. Jumbo lending was up 19.4 percent
in 2012, increasing by nearly 6 percent in the fourth quarter
alone, according to Inside Mortgage Finance.
are home loans that exceed Fannie Mae and Freddie Mac's conforming
loan limit. In most U.S. locations, that means a loan amount higher
than $417,000, or $625,500 in certain high-cost housing
"I don't think that a consumer looking for a jumbo mortgage
today would have much trouble finding financing whereas three or
five years ago it could have been a real challenge," says Bill
Banfield, director of capital markets with Detroit-based
. "I think you are going to see the full gamut of lenders,
everybody from Quicken Loans to brokers to large banks competing in
the activity, which again starts to create momentum and helps drive
A more favorable market
After the financial crisis set in, jumbo loans were basically
only available from lenders who were willing to make the loans and
keep them on their books, forcing borrowers to pay higher costs to
compensate the lenders for the risk of holding onto the loans.
Now, with securitization activity ramping up (securitization is
when a lender groups a pool of mortgages together into
mortgage-backed securities and sells them off to investors),
lenders are less worried about risk and more interested in making
With an increase in activity comes lower interest rates. Keith
Gumbinger, vice president of
, says the rate on a 30-year fixed-rate jumbo mortgage is near
record lows, averaging 4.07 percent for the week ending March 15.
Currently, the spread between jumbo and conforming rates "is quite
close to normal," Gumbinger said in an email, as conforming rates
have risen more than jumbo rates as of late.
Qualifying for a jumbo mortgage
Despite recent improvements in the jumbo market, lenders still
have strict lending requirements. Julian Hebron, branch manager of
RPM Mortgage, a private mortgage bank in San Francisco, says RPM
Mortgage requires a
of 700 or higher, a down payment of at least 20 percent (depending
on your loan size), and financial reserves to cover anywhere from
nine to 18 monthly payments. RPM Mortgage credits 401(k) and IRA
values towards meeting these reserve requirements, which means you
don't have to meet the entire reserve requirements in cash, which
is particularly helpful in high-cost markets.
Hebron says you also may need to have as many as three open
credit lines with 24 months of credit history on each in order to
verify your creditworthiness. Certain non-traditional forms of
credit such as rental history or cell phone bills could count for
this, according to Hebron, but not utility bills.
Banfield notes, "Jumbo clients who got financing seven or eight
years ago may have found the process to be extremely streamlined.
The requirements for lending nowadays are a little bit more
laborious in the fact that we're going to need to document assets,
income and the sources of those."
Lastly, there still remains a gap between what somebody thinks a
home is worth and what it appraises for. Given the size of jumbo
loans, even a small percentage difference could result in you
bringing substantially more cash to the closing table.
Types of jumbo loans
Wells Fargo, the top jumbo lender in 2012 according to Inside
Mortgage Finance, offers 15, 20 and 30-year fixed jumbo mortgages,
as well as 5, 7 and 10-year adjustable-rate jumbo mortgages.
Emmanuel Vuillequez, a jumbo mortgage product manager with the San
Francisco-based bank, advises you to choose a product based on your
specific needs. "One thing you need to consider is that instead of
locking your rate for 30-years, what about locking your rate for 10
years? It's not good for everyone, but a 10/1 ARM has a rate that
is significantly lower than a 30-year fixed," says Vuillequez.
According to data from HSH.com, a 10/1 jumbo ARM has an interest
rate of 3.31 percent, versus the 30-year fixed jumbo at 4.07
percent. If you're comparing a loan amount of $1 million, over a
10-year period, the 10/1 ARM borrower pays nearly $430 less each
month and saved over $72,000 in interest.
In some high-cost markets, FHA-insured loans can go as high as
$729,750, offering a financing option for borrowers with smaller
down payments and lower credit scores. Banfield says you can apply
for an FHA loan with a credit score as low as 580 and a down
payment of just 3.5 percent. As well, he says the FHA tends to be
"more flexible related to prior derogatory credit such as
bankruptcy, foreclosure and short sale."
With the housing recovery picking up along with the demand for
high-end homes, experts say that jumbo lending should continue to
grow, providing more affordable options for jumbo borrowers.
And for the mortgage market overall, the re-emergence of the
jumbo mortgage market is a sign that there is less dependence on
Fannie Mae and Freddie Mac, says Hebron. "I don't see them going
away ever, but for them to control 90 percent of the market is too
high. And we're starting to see that now private investors
certainly want to play in U.S. housing."