Real Estate: Low Interest Rates and Jumbo Loans

By Glenn Rodriguez

Rates are still at historic lows and it continues to be a great time for people to refinance their existing mortgage or buy a new home. With rates as low as they are many people are able to refinance their existing mortgages into longer term fixed rates or purchase a new home with much lower payments than have been available in the past. Over the past year the people who have benefited the most from the lower rates have been those with or seeking loan amounts under $729,750.

Loans over $729,750 are typically classified as jumbo loans. They are not guaranteed or salable to Fannie Mae or Freddie Mac. Therefore, lenders that offer jumbo loans have to either hold them in their portfolio or sell them in the secondary market. With money being as tight as it has been much of the secondary market has lost interest in these jumbo loans. As a result there has been less money available for jumbo loans. Many lenders either stopped originating jumbo loans or offered them at much higher rates. Now we are starting to see some of those lenders come back into the market with more competitively priced jumbo loans and others easing their guidelines slightly, making these jumbo loans much more attractive than they have been over the past couple years.
Just like conforming loans, jumbo loans are harder to get that they used to be. Gone are the days of no documentation loans. In today’s market, borrowers should be prepared to document their income and assets. Tax returns, pay stubs and bank statement are all reviewed before a lender will approve a loan. Lenders are also looking at a borrower’s credit history and making decisions based on the borrowers FICO scores. Lenders use what is called a tri-merged credit report, which shows a detailed credit history as well as a FICO score from all three credit bureaus. These scores range from about 350 to 850. The higher the score the better the credit rating and the more likely that borrower is to qualifying for the best rates available.

In addition to looking at a borrower’s qualifications, lenders are also looking at the property itself and how much money is requested compared to the value of the property. This is commonly referred to as the loan-to-value. Loan-to-value is calculated by taking the loan amount and dividing it by the value of the property. For example if someone is buying a property for $1,000,000 and they are putting $200,000 down (20 percent) their loan to value would be 80. For jumbo loans there are currently no lenders that are willing to lend on properties that have a loan to value over 80. This means that if a borrower is looking for a loan amount over $729,750 they must put at least 20 percent down or have the equivalent in equity. This rule only applies to jumbo loans. There are several programs available for lower loan amounts that allow borrowers to have less than 20 percent equity.

We have seen a lot of changes in real estate financing over the past couple years. Most of these changes have made it harder for people to get money than it was in the past. It is nice to see that the momentum is starting to change for the better and that more people may be able to take advantage of these historic low rates.

Glenn Rodriguez is a Senior Loan Consultant with Guarantee Mortgage. He has specialized in the financing of residential and income properties since 2001. He can be reached at 415 570 0400, glenn@cahomefinancing.com or online at www.cahomefinancing.com.

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