A jumbo mortgage is generally considered to be a home loan for a single unit property in the contiguous United States and Puerto Rico for an amount exceeding $417,000 in average real estate markets. In areas with high cost of living such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands, a mortgage for a single unit property over $625,500 is considered a jumbo loan. It is a loan amount greater than the conforming loan limit set by the Federal Housing Finance Agency. A jumbo mortgage is typically given to a borrower for a high-end home ranging in price from $750,000 to $10 million. Over the past several years, a jumbo loan borrowers have typically included corporations and wealthy individuals.
The “jumbo” line is different for properties with multiple units. For multiple properties located in the contiguous United States and Puerto Rico, the jumbo mortgage loan limits are as follows:
- 2-unit property: Greater than $533,850
- 3-unit property: Greater than $645,300
- 4-unit property: Greater than $801,950
Multiple properties located in expensive areas such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands have the following limits:
- 2-unit property: Greater than $800,775
- 3-unit property: Greater than $967,950
- 4-unit property: Greater than $1,202,925
Big Loans, Big Recession, Big Headache
Following the real estate market crisis of 2008, obtaining a jumbo loan became very difficult. In part, borrowers were faced with the challenge of getting an appraisal to accommodate the size of the loan, which was tough to do while home prices were falling. Additionally, jumbo mortgage borrowers were required to have a credit score over 740 and put down a minimum of 20% of the purchase price of a primary residence home. Much of the risk associated with a jumbo mortgage is related to the difficulty of selling the high dollar homes that secure jumbo mortgages. With the economy in recession and home values dropping, finding a buyer for a big-ticket home has been far from certain for the past several years.
Jumbo Loans Make A Comeback
As the real estate market has begun its upturn, the jumbo mortgage market has started to bounce back. Recently, JPMorgan Chase relaxed its standards for qualifying for a jumbo mortgage. Now, an applicant for a jumbo mortgage through Chase need only have a credit score of 680 and a down payment of 15% in order to qualify for a maximum loan amount of $3 million. Chase has made changes to the qualifications for buying a second large home as well. Previously, a jumbo mortgage for a second home required a down payment of between 30%-50%. Today, a potential borrower need only put down 20% and have the same credit score of 680 required to buy a first home.
Jumbo mortgages are also becoming more accessible as a result of the Mortgage Partnership Finance (MPF) Direct program. Unlike traditional conforming mortgages, jumbo mortgages historically could not be sold to Fannie Mae or Freddie Mac. Instead, private lenders have bought them in securitized bundles or the originator has maintained the loan. This created a higher risk for investors, meaning jumbo mortgages have typically carried a higher average interest rate than traditional conforming loans. However, in the past several months several banks have received regulatory approval from the Federal Housing Finance Agency to take part in the MPF Direct program.
MPF Direct is a jumbo mortgage product that began a little over a year ago and enables these Federal Home Loan Banks (FHLBs) to sell their jumbo loans to the Federal Home Loan Bank of Chicago (Chicago FHLB). The Chicago FHLB in turn sells these loans to Redwood Trust. Redwood Trust, a California based real estate investment trust, has acquired $1.4 billion in jumbo loans and $1.4 billion in Fannie Mae and Freddie Mac conforming loans in just the second quarter. These changes in the regulation on sales of jumbo loan products benefits the FHLB participating financial institutions (PFIs) by offering competitive fixed rate jumbo products to borrowers without some of the old restrictions. It allows the PFIs to sell their servicing rights while continuing to build and maintain effective relationships with their customer base. Additionally, PFIs participating in the MPF Direct have the capacity to transfer the interest rate and credit risk of the jumbo mortgage product to an investor. Consequently, PFIs essentially eliminate risk-based capital or credit risk collateral requirements.
Looking for a jumbo mortgage?
There are still many hurdles to face if you are seeking a jumbo mortgage. Until more lenders follow the trend set by Chase, you will typically be faced with a down payment of 20% or higher; you will need to be able to adequately document your income; you must show that your anticipated monthly note is not more than 38% of your monthly pre-tax income; and, your loan will most likely be an adjustable rate mortgage as opposed to a fixed rate product. If you are able to qualify for a jumbo mortgage, the interest rates for thirty year jumbo loans have hovered most recently at or below 4 %. Considering the difficulty of obtaining jumbo mortgages in recent years, these latest small steps taken by lenders are good news for borrowers.
Big Debt Trouble?
Jumbo mortgages aren’t just risky to the lender. They’re risky to the borrower, too. If you find yourself falling behind on your mortgage, the Mortgage Warriors may be able to help. Contact us today for a free consultation to learn about your options for getting your mortgage – jumbo or otherwise – back on track.