Searching For Jumbo Mortgage Loan Financing? Beware!

Searching For Jumbo Mortgage Loan Financing? Beware!

Borrowers considering homes that require mortgages above the Fannie/Freddie maximum of $417,000 should be aware of the many differences that exist in the qualification and underwriting processes. Generally, Jumbo mortgages are harder to qualify for and need higher base interest rates. traditional loans are obtainable up to $417,000 in most areas at interest rates currently averaging below 5% for terms of up to and including 40 years. Jumbo mortgages (above $417,000) are offered by a diminishing number of lenders with rates generally at or above 6% with maximum terms of 30 years.

Another obvious disparity is the minimum required credit rating. Borrowers with FICO scores above 660 meet the minimum score qualification for traditional loans originated by most mortgage lenders. Jumbo loan applicants must apply with credit scores equating to 720 minimum. Additionally, traditional underwriting will allow at the minimum one 30 day mortgage or rental payment delinquency in the prior 12 months (some lenders already allow for one in the past 6 months). Jumbo applicants can have no 30 day late notices over the same period.

Other financial factors that show notable differences are in the areas of reserves, maximum loan to value, and debt to income ratios. Jumbo loans require that liquid assets equaling 12 months reserves reside in the borrowers financial portfolio. traditional borrowers are typically required to prove only 2 months of liquid reserves. As to loan to value ratios; traditional loans can be written for up to 95% of the value of the home while Jumbo loans max out at 75%. Finally the maximum housing ratio (debt to income) allowed for a traditional loans is 43% while a Jumbo loan applicant must demonstrate a maximum of 40% total combined mortgage, installment and revolving debt.

There also exist definite demographic differences which make Jumbo loans far harder to acquire. Geography and character designations are the two most notable characteristics illustrating these differences. traditional loans can finance the buy of 1-4 unit similarities. while Jumbo loans can only be written for similarities with no more than 2 units (duplexes) included. traditional loans are obtainable for investment similarities but Jumbo loans are strictly reserved for owner-occupants. Along these same lines, the shared “1031 exchange” used as a source of down-payment funds by investors is not obtainable for Jumbo transactions.

In view of the current decline in localized real estate markets, Jumbo loans are completely unavailable in many states including Florida, Michigan, and Rhode Island among others. traditional loans keep obtainable in all 50 states. Also, Jumbo loans are not obtainable to non-long-lasting resident and resident aliens as are most traditional programs.

Finally, most lending institutions will not allow “cash-out” Jumbo programs which are generally obtainable on a traditional basis. Certain regional and portfolio lenders offer exceptions to this general rule.

A shared practice that has evolved from the impact of these factors is the rapid rebirth of the subordinated second lien used in combination with a conforming (traditional) first to create a combo loan program consequently avoiding the Jumbo scenario. This works well for total loan amounts of up to $750,000 which use a $417,000 first at traditional rates with a $300,000+ 2nd . This allows for a lower down-payment outlay, avoids any private mortgage insurance premiums, lengthens terms and requires smaller reserves etc. to qualify.

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