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Posts Tagged: Jumbo Loan

Conforming Jumbo Mortgage Limits Are Going Up

Jumbo mortgages are about to get a whole lot bigger.

On Nov. 23, the Federal Housing Finance Agency announced that it will raise the conforming loan limit on jumbo loans from $417,000 to $424,100 beginning in 2017, Bloomberg reported. In areas where it is more expensive to purchase a home -  such as San Francisco or New York City - government lenders Fannie Mae and Freddie Mac will raise the limit from $625,500 to $636,150, the source noted.

The move might make it easier for some potential homeowners to purchase a house, according to Bloomberg. Conforming loans are different from other mortgages because they meet criteria that allow Fannie Mae and Freddie Mac to purchase it and package it with others to sell to investors, The Wall Street Journal reported. Conforming loans can be attractive to mortgage applicants because they usually come with lower interest rates due to the higher value of the loan.

The announcement is a reaction to rising home prices, according to The Wall Street Journal. The government is trying to keep homes affordable for individuals by increasing the amount of money they can borrow, the source noted.

"When you raise the limits, it's about giving young, successful people the chance to get in the game," Phil Ganz, a Boston-based loan officer, told Bloomberg.

When legislators created the law that established the original limit, they made it so the limits could not be raised until home prices returned to their levels in the third quarter of 2007, according to The Wall Street Journal. Home prices are now 1.7 percent higher than during that time period in 2007, so the limit was raised by that amount now, the source noted.

Experts say raising the limit might raise some concerns from Republicans in office about government increasing its role in the housing market, Bloomberg noted.

Recent Jumbo Loans rule changes

Interested in buying a home with a market value over $417,000? Jumbo loans might be just what you need. These loan programs are designed to help buyers afford higher-value homes that exceed the financing limits for government sponsored enterprises like Fannie Mae and Freddie Mac. While they have traditionally been seen as expensive and largely the purview of the very rich, these loans have increasingly been made available to average, median-income buyers - offering very reasonable rates, even to first time homeowners. 

"Changes have been slowly coming to jumbo loans."

"In some markets, the first-time buyer is looking at a jumbo loan," Bob Walters, Quicken Loans' chief economist, told Realtor.com. Walters refers to the fact that many markets have higher real estate values in addition to standards of living, making jumbo loans a necessity. In areas like San Francisco or New York City, where median home prices hover around $1 million, even middle-class buyers may need a jumbo loan to afford property near where they want to live and work.

The New, Attainable Jumbo Loan

Five years ago, a jumbo loan meant a 30-percent down payment and an astronomical rate. Worse yet, those excruciating terms were only offered by a major bank.

Today’s jumbo loan is far different. With the right credit score and the right down payment, the rate on a jumbo loan is only slightly higher than that of a conventional loan. As a result, the jumbo loan has become far more common. In 2015, lenders provided $320 billion in jumbo mortgage financing, which made up 19 percent of all mortgage lending, according to Inside Mortgage Finance.  

Although this is good news, it also represents an adaptation to a harsh housing market for buyers. With home prices running circles around wage growth nearly everywhere, there are actually regions of the country in which a home that is priced only a tad above the region’s average could require a jumbo loan. This is seen in markets such as Washington, DC, where one in four purchases is now made using a jumbo loan.

As a result, the Federal Housing Finance Agency has unveiled new loan limits for 2016, increasing the number of loans that can be bought and resold to secondary markets. This move affects the Boston, Denver, Nashville, and Seattle metro areas, and several counties across California have significantly raised their limits on conforming high balance loans for 2016. The Denver area saw this limit rise by an astonishing $34,500.

With the jumbo loan growing in popularity and necessity, some common misconceptions remain.

 

  • You Need a Huge Down Payment to Qualify. Many buyers believe they need to make a 30-percent down payment to qualify for a jumbo loan. This is not the case. Buyers with a FICO score of 760 who make a 10-percent down payment can qualify for an $850,000, 30-year fixed-rate loan. The buyer may face strict requirements when it comes to debt-to-ratio and cash reserves, but lending requirements have been steadily easing over the last three years.

 

 

  • Rates on Jumbo Loans are Astronomical Compared to Conventional Loans.In many cases, rates on jumbo loans are not much higher than those on conventional loans. In fact, the rate on the same $850,000 loan in some cases is only 0.25% more than the rate in the same scenario for a non-jumbo conventional loan. Of course, this is for someone with a high credit score. As always, the higher the credit score and down payment, the better the rate.

 

 

  • Only Major Banks Do Jumbo Loans. This may have been the case three years ago, but in today’s market, it is common for a nonbank private lender to offer jumbo loans. This is the primary reason jumbo loan rates are falling down to conventional loan levels. Competition is a consumer’s best friend, and in a time when median home prices aren’t far off from jumbo loan standards, competition is intense.

The jumbo loan is starting to resemble a more common, affordable loan. That’s why it’s important to address these outdated concerns people may still have with this product.

Jumbo loans: higher earners, lower down payments

Jumbo loans have long offered a unique financing opportunity for homeowners. They provide mortgage financing for borrowers looking to purchase a home that exceeds the lending limits set by Fannie Mae and Freddie Mac, typically $417,000 in most areas. For years following the housing crisis, lenders have been insistent on most borrowers looking to finance their homes with a jumbo loan paying a minimum of 20 percent down payment. 

"Lending standards for jumbo loans have recently started to loosen."

Lending standards for jumbo loans have recently started to loosen, however, particularly for what is often referred to as "Henry" borrowers. Henry is an acronym, standing for "high earner, not rich yet." This describes many hard working Americans who might benefit from a jumbo loan, but may have savings tied up in employer-provided retirement accounts and not immediately accessible to make the significant down payment. 

Luckily for Henrys, many lenders are now offering jumbo loans with far lower down payments than 20 percent. More lenders will approve jumbo loans with down payments as low as 10 percent, with a few willing to go even lower. Even better, jumbo loans typically do not require private mortgage insurance, even if down payments are less than 20 percent.

4 facts about jumbo loans

If you're on the hunt for a larger, more expensive home, finding a mortgage can sometimes be a struggle. Luckily, with the continued recovery of the housing market, more and more lenders are offering jumbo loans.

Jumbo loans are mortgages that exceed the conforming lending limits set by Fannie Mae and Freddie Mac. These limits vary by area, but in most places the limit for a single-family home is $417,000. For borrowers looking to finance a larger home, here are three facts about jumbo loans:

  • Most jumbo loans are adjustable rate. This means that the interest rates on a jumbo loan will periodically reset to align with to current market rates. Fixed-rate jumbo loans—where the interest rate remains set for the entire duration of the loan or until refinancing—are relatively rare.

Jumbo loans surge in California amidst housing boom

Recently released data from the California Association of Realtors reports that buyers looking to finance houses worth more than $625,500 have been entering the market in record numbers. This rise in jumbo loans seems to be driven by high demand, rebounding home values, and the strength of the tech industry in the state.

Over half of Bank of America's jumbo lending is originated and closed in California, with the total amount being lent up 20 percent over a year ago from January through August 2015, according to Ann Thompson, Bank of America's regional sales executive for Northern California. Also of note was the fact that about 43 percent of Bank of America's California jumbo loans in the first half of 2015 went to first-time home buyers.

"California is by far the biggest lending state when it comes to jumbo mortgages both in dollar amount and number of loans," says Guy Cecala, publisher of Inside Mortgage Finance. Much of the increase in these loans seems encouraged by a healthy market and high home prices, particularly in areas affected by the tech boom.

Luxury properties leading housing market recovery

As we've recently reported, the latest National Association of Realtors (NAR) monthly sales report for September showed that even though the number of closings on existing homes dropped over the period, the average market price continued trending upward. Upon further investigation, it seems that different areas of the United States are seeing much faster value appreciation than others, indicating the national economic recovery is bouncing back at an uneven pace.

However, compared to year-ago values, the largest sales increases across the board have been on the most expensive properties. Homes that cost between $750,000 and $1 million have seen sales rise by 42 percent since September 2012, accounting for 2.1 percent of total sales volume in September 2013 compared to 1.8 percent a year ago.

Property values increase across the country

Home values continue to trend upward across the country as the economy regains steady footing following the Great Recession. According to the National Housing Trend Report for September from realtor.com, more than 20 percent of the 146 markets that the survey monitors saw average price gains of 12 percent or more.

There were a few select metropolitan areas where asking prices rose at a significantly faster pace than the national average. What is so promising about these findings is that they are indicating fast recovery in parts of the country that were hardest hit by the recent economic downturn.

Forbes unveils 10 most expensive zip codes

With interest rates on jumbo loan agreements nearing record lows over the past few months, more and more buyers have been interested in purchasing properties with price tags well above the conforming loan limit of $417,000 - or $625,000 in more expensive locales. These conditions have led to a major uptick in the total value of properties in cities and towns across the country, with homes on both coasts exceeding property values seen before the crash of the housing market back in 2008.

Forbes recently compiled a list of the most expensive zip codes coast to coast, and the results showed that major technological hubs are seeing the highest increases in residential home value.

Homes flying off the market at record pace

As we reported recently, August 2013 proved to be the best month in roughly six years for the housing market, with roughly 5.48 million homes sold on a seasonally-adjusted basis. What is perhaps most encouraging about this figure is the fact that the amount of time each of these properties remained on the market was significantly shorter than homes for sale in previous years.

According to figures from the National Association of Realtors (NAR), more than half of the properties sold were closed upon in 43 days or less, with 40 percent of total homes leaving the market in under one month. During the same time last year, the average amount of time a home remained on the market was roughly 70 days and more than 90 days in August of 2011.