All You Need To Know About Jumbo Mortgages
Jumbo Mortgage Loans in 2011: An Update The state of jumbo lending is incredibly confusing for today's consumers.
In the recent past, jumbo loans were considered any loan in excess of $417,000.
Easy! That was the largest loan size that Fannie Mae and Freddie Mac would guarantee.
This Fannie and Freddie guarantee makes the loan very desirable to investors and profitable for lenders.
Since 2009, a new hybrid mortage has emerged.
It is called a high-balance loan.
What is a high-balance loan? The Obama Administration as part of the Economic Stimulus Act of 2008 allowed Fannie and Freddie to guarantee loans in excess of $417,000 in some of the higher priced areas of the country, for example, California, Hawaii, New York and Massachusetts.
The rates on a high-balance loan are generally only.
25% higher than those on a regular conforming loan.
That is much better than rates for a fixed rate jumbo loan which are almost a full 1% or more above those of a fixed rate conforming loan.
So, for example, if you live in Boston (Suffolk County) Massachusetts, a loan up to $417,000 would be considered a conforming loan.
A loan size from $417,001 to $523,750 would be considered a high-balance loan, $523,751 or more would be considered a jumbo loan.
For a borrower looking to purchase or refinance a home, it is critical to understand what the parameters are.
The categorization of a loan as a conforming, high-balance or jumbo loan will affect not only the interest rate, but whether or not the borrower will qualify at all.
Jumbo loans are typically more difficult to qualify for, having lower loan to value and debt to income requirements.
This distinction is especially critical for home buyers.
A homebuyer may be able to qualify under Fannie or Freddie conforming or high-balance loan guidelines in a county where the county lending limit is high, but will not be able qualify in a county with a lower loan limit when the loan amount causes the loan to be underwritten as a jumbo loan.
To make this all the more confusing, this is a temporary increase in lending limits.
The increased limits are set to expire on September 30, 2011.
At that time, more homeowners and buyers will need to qualify under jumbo loan guidelines.
If you are on the cusp of high-balance versus jumbo territory, it makes sense to look at your mortgage setting sooner rather than later.
If you need a jumbo loan, what is the best way to go about getting one? Do a little bit of research.
Since jumbo loans are not guaranteed by Fannie and Freddie, they are seen as a more risky loan for the lender.
The lender is on the hook for the entire amount of the loan loss if there is a default.
To offset this risk, rates on fixed jumbo loans are higher than conforming loans.
The qualifying guidelines on jumbos are usually more restrictive.
The number of national lenders who are still writing these jumbo loans has decreased dramatically.
Only a handful of national players are still doing jumbo lending - Wells Fargo, Citi and Chase - and the products they offer are similar and vanilla.
They usually want 20-25% as a down payment, or in the case of a refinance, a 20-25% equity position.
An additional layer of difficulty exists for super jumbo loans in excess of $1,000,000.
A great option for many jumbo borrowers are smaller niche and local lenders.
Since the local lenders are invested in the community, they will often offer more flexibility for consumers as they "portfolio" their loans.
That just means they underwrite the loans and retain the servicing on the loan.
Some niche jumbo lenders are able to offer purchase programs for as little as 10% down, have longer term 10/1 ARMS, a little higher debt to income limits, larger loan lending abilities, or may be more willing to do combo loans with a first and second mortgage.
Putting in some additional legwork can benefit the jumbo loan borrower in the long run.
In the recent past, jumbo loans were considered any loan in excess of $417,000.
Easy! That was the largest loan size that Fannie Mae and Freddie Mac would guarantee.
This Fannie and Freddie guarantee makes the loan very desirable to investors and profitable for lenders.
Since 2009, a new hybrid mortage has emerged.
It is called a high-balance loan.
What is a high-balance loan? The Obama Administration as part of the Economic Stimulus Act of 2008 allowed Fannie and Freddie to guarantee loans in excess of $417,000 in some of the higher priced areas of the country, for example, California, Hawaii, New York and Massachusetts.
The rates on a high-balance loan are generally only.
25% higher than those on a regular conforming loan.
That is much better than rates for a fixed rate jumbo loan which are almost a full 1% or more above those of a fixed rate conforming loan.
So, for example, if you live in Boston (Suffolk County) Massachusetts, a loan up to $417,000 would be considered a conforming loan.
A loan size from $417,001 to $523,750 would be considered a high-balance loan, $523,751 or more would be considered a jumbo loan.
For a borrower looking to purchase or refinance a home, it is critical to understand what the parameters are.
The categorization of a loan as a conforming, high-balance or jumbo loan will affect not only the interest rate, but whether or not the borrower will qualify at all.
Jumbo loans are typically more difficult to qualify for, having lower loan to value and debt to income requirements.
This distinction is especially critical for home buyers.
A homebuyer may be able to qualify under Fannie or Freddie conforming or high-balance loan guidelines in a county where the county lending limit is high, but will not be able qualify in a county with a lower loan limit when the loan amount causes the loan to be underwritten as a jumbo loan.
To make this all the more confusing, this is a temporary increase in lending limits.
The increased limits are set to expire on September 30, 2011.
At that time, more homeowners and buyers will need to qualify under jumbo loan guidelines.
If you are on the cusp of high-balance versus jumbo territory, it makes sense to look at your mortgage setting sooner rather than later.
If you need a jumbo loan, what is the best way to go about getting one? Do a little bit of research.
Since jumbo loans are not guaranteed by Fannie and Freddie, they are seen as a more risky loan for the lender.
The lender is on the hook for the entire amount of the loan loss if there is a default.
To offset this risk, rates on fixed jumbo loans are higher than conforming loans.
The qualifying guidelines on jumbos are usually more restrictive.
The number of national lenders who are still writing these jumbo loans has decreased dramatically.
Only a handful of national players are still doing jumbo lending - Wells Fargo, Citi and Chase - and the products they offer are similar and vanilla.
They usually want 20-25% as a down payment, or in the case of a refinance, a 20-25% equity position.
An additional layer of difficulty exists for super jumbo loans in excess of $1,000,000.
A great option for many jumbo borrowers are smaller niche and local lenders.
Since the local lenders are invested in the community, they will often offer more flexibility for consumers as they "portfolio" their loans.
That just means they underwrite the loans and retain the servicing on the loan.
Some niche jumbo lenders are able to offer purchase programs for as little as 10% down, have longer term 10/1 ARMS, a little higher debt to income limits, larger loan lending abilities, or may be more willing to do combo loans with a first and second mortgage.
Putting in some additional legwork can benefit the jumbo loan borrower in the long run.
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