Jumbo Mortgage Update

When discussing the state of the jumbo mortgage the phrase comes to mind, “Progress not perfection.” Along those lines there has been a lot of progress in the jumbo mortgage market though it’s not perfect, it is a lot better than where we were just a few years ago.

We still have a pretty significant spread between the conforming mortgage rate and the jumbo mortgage rate. As we have discussed in earlier posts the main reason of this disparity is the lack of a secondary market for jumbo mortgages. With a conforming mortgage the lender has a secondary market in which to sell the loan off of its books. These secondary mortgage markets are Fannie-Mae and Freddie-Mac.

Lenders that extend a jumbo mortgage product to the marketplace don’t have a place to sell that loan, they must keep that loan on their books. Since they are tying up invest-able funds to extend a jumbo mortgage they have to offset that risk of capital with a higher rate for having to hold the mortgage to term.

We have the “bad” news out of the way concerning a jumbo mortgage, now let’s look at the progress made with jumbo mortgages.

Credit scores necessary to take out a jumbo mortgage have been lowered by many lenders in the marketplace.  Just a few years ago if you did not have a minimum FICO score of 720+ no one would extend you a jumbo mortgage. Now most lenders will go down to a 700 FICO score with a few going as low as a 660 FICO score. Of course with lower scores lenders want that offset with mores liquid assets or a larger down-payment.

Speaking of down-payments after the mortgage melt-down most lenders would not offer a jumbo mortgage without at least a thirty-percent down-payment. Now depending on the mortgage size or loan amount lenders require only twenty-percent as a down-payment. While we have one lender that will do smaller jumbo loans with only fifteen percent down-payment.

As down-payments have decreased loan sizes or mortgage amounts have increased. For a few years it was hard to find any lender that would lend any higher than a million and a half for a jumbo mortgage. Now the majority of lenders will loan up to two million dollars for a jumbo mortgage and others have no limit on a case by case basis.

One item that hasn’t changed is your need to prove your income, or in other words there is no more “Stated Income” jumbo loans being offered in the marketplace. Regulators are requiring banks to show they have verified a borrower’s income through tax returns, W-2s, and paycheck stubs.

While the jumbo mortgage market is not “perfect” we have made a lot of “progress”!

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