The recent upswing in jumbo mortgage purchases is yet another sign of a real estate market returning to health. Jumbo loans – loan amounts greater than $417,000 ($625,000 in some highly affluent markets) – have typically comprised about 25% of all new mortgages.1 That number dipped to as low as 4.3% after the housing market crash and was up to 11.3% as of 2013.1 The steady increase is largely driven by the fact that rates on jumbo mortgages are at or below the level of rates on conventional mortgages for the first time in over 20 years.
A closer look at the jumbo loan market
There are a few key things to know about the jumbo loan market this year. At the buyer level, borrowers considering jumbo loans should be aware that:
Lower down payments are possible. Some large lenders have begun lowering down payment requirements for jumbo loans to 20%. It is believed others will follow suit. That makes jumbo loans even more appealing to wealthy buyers who may wish to put less cash into their home and invest it elsewhere.2
Documentation requirements can be stricter. Partial income documentation is very difficult to find. As has been the case in the past, buyers should be aware that more lenders are requiring stricter income documentation (driven by new federal regulations that don’t allow for low- or no-documentation mortgages).
Some repayment options may be harder to find. Jumbo repayment choices are more flexible than those allowed for conventional loans under January’s new federal regulations (interest-only mortgages and those that require balloon payments, for example). However, some lenders may shy away from offering certain types of repayment options because they are outside of the “qualified mortgage” protected class of loans and therefore carry more risk for the lender.2
Jumbo interest rates should remain low this year. As noted, jumbo interest rates should remain lower in 2014 due to increased lender appetite for higher loan amount transactions.
Housing market impact. Jumbo loan availability is having a positive impact on the broader real estate market, with more homebuyers finally making that “move up” purchase they may have delayed while waiting for more favorable purchase conditions. This has, in turn, also freed up more inventory in the lower priced end of the market.3
The timing is right for jumbo mortgage purchases
The bottom line is that it’s a good time to be a jumbo borrower. With interest rates far lower than they’ve been in many years and lender appetite for lending jumbo loans improving, potential buyers should be excited for 2014. Buyers should also be sure to find out exactly what lenders are offering since this may vary, but overall the opportunity for an excellent deal on a jumbo mortgage is better than ever.Sources:
- “As housing market improves, jumbo mortgages return,” by Ben Tracy, CBS NEWS
- 5 ways the jumbo mortgage market will change in 2014, by AnnaMaria Andriotis, MarketWatch.
- “Why today’s home buyers have jumbo mortgage-sized dreams,” by Beth Pinsker, Reuters.com