By September 22, 2014 0 Comments Read More →

Can I Still Get A Jumbo Mortgage?

jumbo mortgage, OurBroker.comJumbo mortgages are big loans, generally more than $417,000 in most areas but greater than $625,500 in “high cost” markets. Because of their size do not meet conforming loan standards or FHA rules and that should make them both hard to get and more expensive than other residential financing but that’s not the case: According to the Mortgage Bankers Association rates for jumbo financing were actually cheaper in mid-September than the rates for loans sold to Fannie Mae and Freddie Mac.

How can this be?

The country is now coming out of a massive foreclosure meltdown that began in 2006 and 2007, the worst since the Great Depression of the 1930’s. Nobody wants a repeat of this event and one result is that new lending rules are now in place.

Under the new guidelines most new loans are “qualified mortgages,” loans which limit lender liability under Wall Street Reform. There are a variety of standards used to define what is and what is not a “qualified mortgage” and several impact jumbo financing.

For instance, as much as 43 percent of a borrower’s income can generally be devoted to recurring monthly debts such as mortgages, car payments, student debt and credit card bills under the new rules. That’s a problem for some jumbo borrowers because they have often been allowed to devote more 43 percent of their income to such costs.

Another potential problem is that some jumbo loans start out as interest-only mortgage products, meaning that initial monthly costs are lower than with a self-amortizing loan because only interest is being paid. Under qualified mortgage rules interest-only loans are a no-no.

New Rules and the Jumbo Mortgage

Under the new rules jumbo loans will still be available in the form of qualified mortgages for well-qualified borrowers. However, jumbo mortgages are also available as a “non-qualified mortgage” or non-QM. These loans can have debt-to-income ratios greater than 43 percent and can be in the form of interest-only financing, say a loan with a five-year interest-only start period.

Oh, and why are jumbo loans cheaper than conforming mortgages? When loans are not sold to Fannie Mae and Freddie Mac lenders do not have to pay the guarantee fees charged by these organizations. The result is that jumbo loans can be priced lower than conforming loans.

(Originally syndicated to newspapers nationwide by Content The Works and updated for OurBroker.com)

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