Jumbo loans are loan amounts above local conforming loan limits, in most locations this conventional loan limit is currently $647,200. Things have changed somewhat over recent years with Jumbo loans and these changes have made them more attractive, primarily as it relates to jumbo interest rates and structuring loans.
For some lenders not very experienced in the jumbo market, consumers might get the impression the lender doesn’t want to issue a jumbo loan. Why? Because one of the first things some loan officers do is to find ways around a jumbo mortgage and get a bit more creative with your purchase. Yet that might very well be a mistake, especially so for those with higher credit scores and greater down payment.
In the past, say pre-2007, fixed jumbo interest rates could be more than 1.0% higher than for a conforming loan under the same circumstances. If a conforming rate was at 3.50% on a $400,000 loan a jumbo rate might be somewhere around 4.50% on a $600,000 mortgage. Using a 30 year fixed rate of 4.50%, the 1.0% difference can mean a lot, especially over the long term. That’s why some loan officers will run different scenarios in order to avoid the perceived pain of a jumbo rate.
The first strategy is to ask if there are additional funds available for a larger down payment to get the loan to the conforming loan limit. That’s the easiest way to get a conforming rate. Just don’t borrow as much. Yet the borrowers may not have or want to put their funds down as equity.
The next method is to take two mortgages, keeping the first mortgage loan at the conforming limit and take a second lien to make up the difference between the down payment and first lien. For example, say a home is listed at $800,000 and the buyers put down 20%. The remaining balance is $640,000, above the conforming limit in most areas. Using a 4.50% 30 year fixed rate at $640,000, the principal and interest payment is $3,242
Now, instead of a single jumbo loan, keep the first mortgage at $647,200 (max conforming loan limit) and follow up with a second lien of $91,750. Using the lower 3.5% conforming rate on $647,200 the principal and interest payment would be $2,461
A second lien at 5.0% on a $91,750 note is $492.00 per month. Add those two together and the total is $2,953, about $289.00 per month lower than the standalone single jumbo option. Further, the 15-year loan can be paid off at any time getting rid of the second lien payment at any time. Or, borrowers could select a home equity line of credit, or a HELOC to be used as a revolving credit line over and over again.
Note: the number above is just principal and interest, do not include taxes and homeowner insurance.
Further, the second lien rate might be much lower in this example making the combination of a first and as second more competitive than one big jumbo loan.
But in today’s environment, these numbers simply don’t make as much sense as they used to. Why? Because jumbo lenders and banks are getting much more aggressive in the jumbo purchase market and the jumbo rate might very well be the better choice and there is no need to try and get the first lien to the conforming limit. It’s not uncommon today for a jumbo rate to be the same or very near the same as the conforming quote making the jumbo payment lower than a first and second combination.
Again, using the same example from above, if a jumbo rate is 4.00% on a 30-year loan, the payment goes much lower. Jumbo lenders are getting more competitive and as home prices continue to rise more and more jumbo loans will be made. And that will keep jumbo financing competitive with conforming rates well into the future.
One more thing to remember, select lenders now offer up to 95% financing (single loan) on jumbo loans, up to $2,000,000 loan amount on purchase and Jumbo refinance options. Additionally, many of these programs do not require private mortgage insurance. Please read more about 5 percent down payment options on our home page.
Questions? Please contact Jumbo Mortgage Source at ph: 800-962-0677 or just submit the quick contact form located on this page. We serve home buyers across the nation, including North Carolina: Charlotte, Raleigh, Greensboro, Winston-Salem, Durham, Fayetteville, Cary, Wilmington, High Point, Greenville, Asheville, Concord, Gastonia, Jacksonville, Rocky Mount, Chapel Hill NC