How to get a jumbo mortgage when lenders are scarce

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With so much changing in the mortgage and real estate markets during the Covid-19 pandemic, homebuyers looking to purchase expensive property have found that taking advantage of ultra-low mortgage rates hasn’t been easy as lenders have pulled back from this market.

A non-conforming or jumbo loan, is a loan that is above the limit set by the Federal Housing Finance Authority; currently this is $510,400 for a single-family home, but it can go up to $765,600 depending on the state and county where the property is located.

The jumbo market has taken a hit as lenders spurned these higher-risk loans, which can’t be sold to government agencies like Mannie Mae and Freddie Mac. Unlike conforming loans, jumbos are held on the books of the lender or sold off to private investors, whose appetite for buying securities backed by these mortgages has waned considerably.  According to Mortgage Bankers Association data, jumbo loan originations recently have fallen more than 90 percent from a year ago.

Still, potential homebuyers and refinancers see an opportunity to secure a lower interest rate on a jumbo loan and save thousands of dollars on their monthly payments, if only they can find a lender willing to write the mortgage. The good news is jumbo mortgages are still available.

What’s changed in the jumbo loan market?

While banks continued to issue non-conforming loans throughout the pandemic, the jumbo mortgage market did change in a major way: some lenders, including Wells Fargo, have temporarily suspended the purchase of jumbo loans from correspondent sellers. This means that a potential jumbo loan borrower has fewer options when shopping for a mortgage.

It also means that borrowers may face stricter requirements. Jumbo loans have always been manually underwritten, and require higher credit scores than conforming loans, but borrowers may also see a difference in minimum down payment requirements as well as lowered loan-to-value ratios.

“We have decreased our LTV from 90 percent on jumbo loans to 80 percent LTV depending on credit score, loan amount and property type,” says Glenn Brunker, mortgage executive at Ally Home. “Due to fewer choices as a result of the financial environment brought about by the pandemic, borrowers should plan to bring a higher FICO score to the process than they might during less extraordinary times.”

When will things improve?

Ally Home, like most lenders, is continually monitoring these new and temporary guidelines, and making adjustments as necessary. Brunker notes that there’s no set timetable to know when things will improve, and that all temporary guidelines are being reviewed every 30 days–with some restrictions already easing. For example, on conforming loans, the minimum credit score was increased at the start of the pandemic but has already been lowered.

Sherry Graziano, senior vice president at Truist Mortgage, echoed a similar sentiment, noting that Truist did “tighten guidelines” back in March, but that they are now reassessing these guidelines given the current market. “Although we are far from being on the other side of this health and economic crisis, we are seeing some stability that has allowed us to selectively loosen credit standards from our initial actions.”

Wells Fargo is taking a wait and see approach, says Tom Goyda, senior vice president of Consumer Lending Communications. The lender will continue the temporary suspension of correspondent purchases of non-conforming loans until their “analysis of market conditions indicates that it is appropriate to resume those purchases.”

The bank has as of July 1 already removed the limitations they placed on non-conforming refinances back in early April. Whereas jumbo refinances had been limited to customers with more than $250,000 in assets with Wells Fargo for 30 days or more, now new customers can refinance if they transfer $1 million to a qualifying account.

Options for jumbo mortgage borrowers

If you are in the market for a jumbo loan, a larger bank may be your best bet. “Borrowers will want to look for a lender that has a strong track record of underwriting jumbo loans and can successfully meet the unique needs of jumbo borrowers who often have more complex finances than other borrowers,” says Brunker.

In addition to Ally Home, some lenders that are offering jumbo loans through their retail channels include Wells Fargo, Truist, Flagstar, and PNC Bank.

Brunker also warns that during the pandemic, jumbo borrowers should expect that a lender will do a final check on their pre-approval documentation prior to finalizing a loan to ensure nothing has changed–in their financial situation in general but especially employment verification. And do expect to pay a higher rate than for a conventional mortgage of the same term.

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.

Finally, if your homebuying plans have been thwarted by a change in borrower requirements, try to see the silver lining: “Any responsible home mortgage provider is not lending to consumers whose financial situation makes them high risk,” explains Brunker. “This ensures the borrower isn’t taking on a financial burden that they can not comfortably afford.”

Featured image by John Greim/LightRocket via Getty Images.

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