Mortgage rates have climbed by about 2% over the last six months!
Jumbo rates, however, have climbed much more slowly – and they are now almost 1% LOWER than conforming (Fannie Mae and Freddie Mac) rates!
What Is A Jumbo Loan?
Once again, a jumbo loan is any mortgage loan that exceeds the conforming (Fannie/Freddie) loan limit for a given county.
For most of the LA basin and the SF Bay Area that limit is $970,800.
For Texas, that limit is $647,200.
Here is an excellent map that sets out the conforming loan limits for the entire country by county.
High Balance Conforming Too!
Many jumbo lenders “accept” high balance conforming loan amounts ($647,201 – $970,800) as “jumbo” so qualifying borrowers in that loan amount range should always consider jumbo financing because the rates are so much lower.
Why Are Jumbo Rates So Much Lower?
I blogged about this last year, and recommend skimming it again.
But, here are some of the reasons why jumbo investors offer such low rates:
- Qualifying is much more difficult, making the loans less risky;
- There are no “G-Fees” or extra fees that Fannie and Freddie charge that make their rates higher;
- Jumbo appraisal rules are much stricter, again making the loans less risky;
- The investors that buy jumbo loans are desperate for secure yields in this economy and offer very low rates to get those yields; and
- Some “big bank” investors offer low rates that make them no money because they hope to establish banking relationships with the borrower.
What Does “Harder To Qualify For” Mean?
- Down Payments: Our best jumbo investors demand 20% down at least. Fannie and Freddie will take 5% down.
- Debt to Income Ratios: Our best jumbo will not go over 43%. Fannie and Freddie will go to almost 50%! Debt to Income Ratios are explained in this blog.
- Credit: Jumbo gives the best rate for an 800 score; Fannie and Freddie’s best rate comes with only a 740 score.
- Reserves: Reserves are the cash remaining in a borrower’s accounts after a transaction is closed. Our best jumbo lenders require 12 months of housing payments in the form of reserves. Fannie and Freddie require none.
Mortgage Banks Hate Jumbo
As I pointed out in this blog, mortgage banks hate jumbo because:
- Jumbo loans are much riskier for them in general;
- Jumbo loans are far more work (often 10x more work than a conforming loan); and
- Jumbo loans are much less profitable.
Jumbo also takes more time to close (17 to 21 days for jumbo vs. 14 days for conforming and FHA).
Go For Jumbo!
Strong borrowers who qualify for jumbo in any way, and who do not need to close in 14 days, should always shoot for jumbo financing – simply because the rates are SO MUCH LOWER!
Yes, we make less money and yes it takes us far more work, but we are always willing to do what is best for our clients.
And getting a 1% lower rate, for very strong borrowers, is definitely what’s best for clients. 😊
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167