Lenders are slowly and selectively starting to underwrite jumbo mortgages again after all but abandoning the market as the pandemic got underway.
Since February 2020, jumbo mortgage originations have plunged 57 percent, according to data from the Mortgage Bankers Association (MBA).
The once-robust market for jumbo loans, and some other types of loans, collapsed at the onset of the pandemic. Lenders worried about the ability of borrowers to repay their loans as unemployment skyrocketed.
“There was no secondary market to purchase these loans and the banks can only hold so many on their balance sheets,” says Mitch Ohlbaum, real estate broker and president of Macoy Capital in Beverly Hills, California. “In fact, there was no secondary market for jumbo loans, non-QM loans, private loans or much of anything to be honest.”
Yet despite the tightening of the overall jumbo market, there’s a segment of the population receiving jumbo or near-jumbo mortgages, says Joel Kan, MBA’s associate vice president of economic and industry forecasting.
“Those who are creditworthy (who have high credit scores) and meet the larger loan balance are still able to find some jumbo loans out there,” says Kan.
What kind of borrowers are getting jumbo loans?
It takes excellent credit and a big down payment to get a jumbo mortgage right now.
“Lenders have raised their minimum credit scores and lowered their loan-to-value or leverage amounts,” says Ohlbaum.
The definition of excellent credit may vary by lender, as does the required down payment amount. But generally, a FICO score of 800 or above is considered excellent. And you’ll typically need a down payment of at least 20 percent to qualify.
“The folks getting these loans are those who weren’t impacted, or as impacted, by the pandemic in the sense of getting furloughed or laid off,” says Kan. “These are people who are more likely to be able to work remotely and still make the same amount of money they’ve always made. It’s a different segment of the market.”
Mortgage rates on jumbo loans
Along with rates on conforming mortgages, rates on jumbos have been steadily declining. The average rate on a 30-year, fixed-rate jumbo mortgage is currently 3.81 percent, according to Bankrate’s weekly national survey of mortgage rates.
Notably, you’ll pay more right now for a jumbo mortgage (if you can get one) than you will for a conforming loan. The average rate on a 30-year, fixed conventional mortgage is 3.36 percent.
But that hasn’t been the case for several years. Since mid-2013 up until early this year, jumbo loan rates remained lower than conforming rates, according to the MBA. Now that’s flipped.
This reverse further points to market tightening and the overall availability of cash to lend on the part of the banks, says Kan.
With the lower rate for conventional loans, it might make sense for people with the financial means to make a down payment on their home that’s large enough to bring the loan into conforming territory. This would also ease the burden of meeting the more-stringent credit and debt ratios that many jumbo lenders are requiring.
Another avenue worth exploring: Find a mortgage broker who specializes in jumbo loans. These brokers may be able to save you time and money in your search.
Featured image by John Greim/LightRocket via Getty Images.