Jumbo loans are the bomb!
I recently closed a $800,000 home loan purchase at 3.625 percent for the first 5 years? WHAT? Absolutely great.! The borrower’s plan was to sell a home they previously occupied and use that equity to pay down the new loan they needed to purchase their new home. They were taking advantage of the vast recovery and availability of Jumbo home mortgages. “Jumbos” are loans in excess of $453,100, a new limit as of January 2018. Jumbos have been historically scarce and very expensive since 2009. But now, in 2018, availability from many investors have surfaced and mortgage brokers are being encouraged to bring them on. As sale prices in Santa Fe increase in the next year, the news could not be any better.
For the past few years, many homes have sold for double or triple the $417,000 Fannie Mae limit and the lack of jumbo loans has been a problem. Purchasers have paid cash due to reasonable financing being more difficult to achieve for a jumbo as compared to a conforming Fannie Mae loan. When financing is both available and beneficial to an individual’s financial plan, mortgages make sense for most. So, when the jumbo market loosens, real estate sales improve and the mortgage business rocks! Realtors and potential purchasers can be heard rejoicing!
I remember back in 2009, when a borrower needing $600,000 paid the current jumbo rate of 7.5 percent to 8 percent while the Fannie Mae rate was 5 percent on loans under the $417,000 ceiling. In those days, we would split the financing requirement into two pieces. The borrower would get a Fannie Mae 30-year loan at 5 percent plus a home equity loan for the amount above $417,000. Even in 2012, the preference was to split the loans with a $417,000 first and a home-equity line of credit (HELOC) second. It worked, but was time-consuming, often causing delayed closings.
Let’s look at what is available now. In the first quarter of 2018, jumbo fixedrate loans and adjustable-rate mortgage (ARM) loans will flourish. A jumbo 5-year ARM can be secured at 3.625 percent. A 7-year ARM has a rate of 3.75 percent and the 30-year fixed-rate jumbo is at 4.25 percent. Excellent rates that we have not seen for years. HAPPYNEW YEAR! Jumbo interest rates will remain higher than the Fannie Mae rates, but not by much. The Fannie 30-year fixed on a $453,100 loan is at 4.00 percent compared to 4.25 percent for a jumbo.
This jumbo product expansion could signal a loosening in the financial markets. When availability increases in any product the competition responds and consumers benefit. The same principle applies in home loan financing. More jumbo products at lower rates will spur other lenders to lend at favorable rates for loans above $453,100.
Lenders are also realizing that, for the most part, borrowers seeking jumbo loans have excellent credit and income. These stellar homeowners, particularly in Santa Fe, will also encourage lenders to expand their loan availabilities. The jumbo borrowers I have worked with this year have excellent credit and enough income to secure the mortgage amount necessary for their purchase.
Spread the word that JUMBOS ARE BACK! No longer do borrowers need to think in terms of huge down payments for their $1,000,000+ properties.
Jim Gay was a real-estate broker for 20 years and has been a financial consultant to Fortune 500 companies. He is currently a broker/owner atThe Mortgage Place, Inc. (986-9080) and can be reached at jim@ jimgayhomemortgage.com.