Jumbo mortgages: Low rates, loosening standards


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Home prices are rising, which means a lender would require you to get a so-called jumbo mortgage.

But don’t fret: jumbo mortgage rates are lower these days and lenders are easing the stricter requirements.

A jumbo loan is a mortgage for that is more than the conforming limit set by Fannie Mae and Freddie Mac. In 2018, the jumbo mortgage floor starts at $453,100 for most larger homes.

This limit will vary depending on the median home price of your area so the more expensive area you live in, the higher the floor for a jumbo mortgage. The housing agencies also set a ceiling of $679,650, or 150 percent of the floor.

Lower jumbo rates

Historically, the rates for jumbo mortgages were much higher than conforming loans, but as lenders returned to offering jumbo mortgages, the fixed-rates have been equal to or slightly above the conforming loan rates.

The 30-year fixed rate for a jumbo mortgage averaged 4.15 percent for the past 52 weeks, the exact same rate as the 30-year fixed rate for a conforming mortgage, according to Bankrate’s weekly survey of lenders in 2017. But just five years ago, the 30-year fixed-rate for a jumbo mortgage was more than half of a percent (or 53 percentage points) higher than the fixed rate for a confirming loan in 2012.

Jumbo mortgages have come a long way since the financial crisis, when many lenders had clamped down from offering them. Most traditional banks and online lenders now offer jumbo mortgages because they can sell it to investors in the secondary market.

“That demand in the secondary market translates into very good rates for borrowers,” says David Adamo, CEO of Luxury Mortgage Corp. in Stamford, Connecticut.

Qualifying for a jumbo mortgage

While jumbo loans are cheaper to get, they may have some stricter qualification requirements. They are for higher-priced homes, which means you need to prove you have the steady income to pay it back, a good credit score, and are not saddled with debt.

A stellar borrower would typically need a credit score of at least 700, but some lenders will go as low as 660 depending on the loan amount, says James Campanella, chief operations officer for City National Bank of Florida based in Miami.

You also typically need to make a 10 percent to 20 percent down payment on the jumbo loan amount. There are also general mortgage rules that would apply to jumbo loans, such as making sure your monthly debt does not exceed 43% of your income, though some lenders will go up to 45%.

You will also need to prove you have cash in the bank to cover emergencies beyond the expected mortgage payments. Generally, borrowers must have 10% of the amount they are borrowing in a savings or brokerage account. You can check your expected mortgage payments before applying for a mortgage.

Shop around, lenders are loosening standards

The requirements to get a jumbo mortgage might sound harder, but more and more lenders now want to offer such loans. Each lender will also have different requirements, so it’s important to shop around and check the rates while comparing fees and closing costs.

And if you get declined the first time, check with other lenders because many have loosened their standards to qualify for a jumbo mortgage this year. In fact, jumbo mortgages had the greatest increase in credit availability, up 3.8 percent in November, than any other home loan category, according to the Mortgage Bankers Association survey of lenders.

“Though the barrier of entry for any loan has been raised from the ‘stated income’ days, quality borrowers will not find it difficult to secure a jumbo loan,” says Campanella.