Mortgage lenders began tightening their pockets when the coronavirus crisis hit the US earlier this year, increasing requirements for all borrowers and for those taking out large home loan loans in particular.
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Globe-house-loan-jumbo
Mortgages that are too big to be bought by Fannie Mae or Freddie Mac, the government sponsored companies that buy home loans, are known as jumbo loans. In most of the country, a mortgage of more than $ 510,400 is considered non-compliant and fits in the jumbo package, although in some expensive markets, the jumbo loan limits are as high as $ 765,600.
Nationwide, jumbo loan availability has plummeted 57% since February, the Mortgage Bankers Association reported in June. Overall credit supply has fallen 30%.
“Lenders feared that home values would drop dramatically when the pandemic began, so they pulled out offering large mortgages,” says Charles Nilsen, head of residential loans at private banking firm Boston Private. “The giant market essentially dried up overnight.”
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Why are jumbo loans in demand again?
At first, low availability may not have been a problem for most of the giant borrowers, as they waited to see what happened to the stock market and the economy in general. Now, with the S&P 500 back to pre-COVID levels and low mortgage rates once thought impossible, the demand for giant loans is increasing. “Our phones are ringing for jumbos,” says Nilsen.
“Home buyers are more optimistic, which means more people are willing to take out large mortgages,” says Kathryn Jennings, loan officer at Alpha Mortgage in Carolina Beach, North Carolina.
Despite initial fears, home values have remained relatively stable since the start of the pandemic. “The inventory contracted relative to demand, so house prices were not affected,” says Nilsen. In fact, low supply has driven house prices up in many places: According to Realtor.com’s monthly report on real estate market trends, the median national listing price in June was $ 342,000, an increase of 5.1 % year after year. As house prices rise, more loans will fall into the jumbo category.
What are the current jumbo jumps? Mortgage rates?
Another reason why the demand for jumbo loans is increasing is because mortgage rates have fallen to record lows. For the week ending July 16, the average interest rate for a 30-year fixed-rate mortgage set a record low of 2.98% with 0.7 points paid, according to Freddie Mac. Lately, however, giant mortgage rates have been higher than the rates for conventional loans. (Before the pandemic, jumbo rates were lower.) The average rate for a 30-year fixed-rate jumbo rate was 3,295% as of July 14, compared to 3,009% for conforming loans, according to Optimal Blue, a technology and mortgage analysis company. .
How hard is it to get a giant mortgage right now?
Like buyers, lenders were scared when the pandemic shook the U.S. economy in March and April, leading many to cut the number of giant loans they issued, while some stopped offering them entirely.
“The only option for most lenders was to put giant loans in their own portfolios,” because private investors weren’t biting, says Mike Fratantoni, chief economist at the MBA. “Many lenders were not willing to take that risk.” Massive Wells Fargo, for example, stopped buying giant loans from other loan originators in early April.
Lenders also avoided jumbo loans because jumbo mortgages cannot be purchased or insured by government-backed Fannie Mae or Freddie Mac. That means the giant loans also don’t qualify for government leniency under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, passed in March, meaning fewer investors in the secondary market were interested in buying them. .
Some of those fears still linger, Fratantoni says, but as the economy begins to improve, more lenders and secondary investors are turning to giant mortgages. The trap for borrowers? Lenders have adjusted the requirements that buyers must meet to qualify.
This is what you need to get approved for a jumbo loan in today’s market.
Credit score Before the coronavirus pandemic, buyers generally needed a credit score of 680 or higher to qualify for a jumbo loan, according to Nilsen, who says jumbo borrowers now need 700 or 720 credit scores. However, to qualify for the best mortgage rates on a jumbo loan, you’ll need a credit score of 760 or higher, says Michael Murgatroy, vice president of mortgage loans for the Florida branch of Guarantee Rate.
In comparison, conventional loans generally require a minimum credit rating of 650. The highest score for jumbo loans is because when you borrow more money, lenders want more reassurance that you are financially responsible.
Initial payment. Giant loans typically require at least a 20% down payment, but some lenders currently request 25%, as borrowers who make larger down payments are less likely to default. Additionally, Nilsen says the down payment required for a “superjumbo,” a mortgage of $ 2 million or more, can increase by up to 30%. The result: Making a larger down payment can help you qualify for a lower mortgage rate.
Debt to income. Your debt-to-income ratio, or DTI, is your total minimum monthly debt divided by your gross monthly income. While the maximum DTI for a conforming loan is typically 45%, and has not changed during the pandemic, the maximum in the jumbo range may be as low as 35% in the current market, Jennings says.
Cash reserves. Lenders want to make sure you have cash on hand to make your mortgage payments in the event of a financial emergency, such as a layoff. For conforming loans, the cash reserve requirements can be as small as a month’s housing costs. But giant lenders often require borrowers to have two-month or even three-month reserves in the middle of COVID-19.
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