Everyone knows it's harder to qualify for a mortgage than it
used to be. But if you're in the market for a jumbo mortgage, it
might be easier than you think.
Approvals for jumbo mortgages are increasing faster than for
smaller-sized loans, according to several market indicators. Bank
of America reports that private-market jumbo mortgages made up 15
percent of its mortgage volume in the second quarter of 2012, up
from only 4 percent a year earlier. Other lenders are reporting
increases as well, while trade publication Inside Mortgage Finance
reports that jumbo mortgage lending is at its highest level since
early 2008.
High-end homes selling briskly
Home sales reflect this trend. According to July figures from
the National Association of Realtors (NAR), sales of existing
single-family homes in the $500,000-$750,000 range are up more than
22 percent from one year ago, compared to a 10.4 percent gain for
the market overall. Homes priced above $750,000 are up about 19
percent over the past 12 months.
It seems counterintuitive, that in a tight market lenders would
be more willing to make big loans than smaller ones, especially
considering that smaller mortgages can be guaranteed by Fannie Mae,
Freddie Mac or the FHA. However, jumbo mortgages can be more
profitable for banks, which makes lenders more willing to approve
them.
Jumbo mortgages are defined as those above $417,500, which is
the largest loan Fannie Mae or Freddie Mac will guarantee in most
U.S. markets. In high-cost markets the figure goes up to $625,500,
a category known as agency or conforming jumbo loans, but many
jumbos are done strictly through the private market.
Why lenders like jumbos now
On a 30-year mortgage, jumbo loans carry an interest rate about
one-quarter to one-half a percent higher than a conforming
mortgage, with agency jumbos running lower than strictly private
jumbo mortgages. This is to reflect the added risk the larger loan
represents, particularly when it's not guaranteed by Fannie Mae or
Freddie Mac, but it's also enough to make them more profitable for
the lender.
The higher end of the housing market has also stabilized more
quickly than the lower end, coming out of the 2008 downturn, which
gives lenders more confidence to make these larger, more profitable
loans.
If you're in a higher-priced market and can obtain an
agency/conforming jumbo loan, you can get away with a down payment
of as little as 10 percent. However, if you're going strictly
through the private market, you'll likely have to put at least
20-25 percent down and perhaps as much as 35 percent on loans
exceeding $1 million..
Private market lenders also usually want to see that you have
resources to cover six months of mortgage payments, in addition to
your down payment, before approving a jumbo mortgage. You'll also
need to have good credit, with most lenders requiring a minimum
FICO score of 720, although a few will go lower. Be aware, though,
that a lower FICO sore or a smaller down payment will also boost
the interest rate you'll be asked to pay.
This article was first published on MortgageLoan.com at:
http://www.mortgageloan.com/lenders-approving-more-jumbo-mortgages-9241