Jumbo Loans Are Hot



Jumbo loans are residential loans that exceed limits that can be guaranteed by Fannie Mae and Freddie Mac. These are loans that lenders either have to keep on their own books or sell to a secondary market that’s not backed by the federal government. Fannie and Freddie backed loans are known as conforming loans. There are limits to how large these loans can be. The limits are set annually by the Federal Housing Finance Agency.

These limits vary and are set at the county level. They also vary by the number of units involved, up to four units (more units are consider commercial properties rather than residential). For example, a higher loan limit is set for a duplex compared to a single residence. Generally, the current conforming loan limit is $417,000 but will be higher in markets with higher valued homes. Among the highest is a county in Hawaii with a limit of $713,000. Amounts exceeding the Federal Housing Finance Agency limits are considered jumbo loans.

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The Jumbo Loan Market is Booming

The publication Inside Mortgage Finance reports that in 2014, 23.5 percent of loans were (almost 1 out of every 4) were jumbo loans. So far in 2015, jumbo loan originations are up by 9.8 percent. The jumbo loan market is hot.

Although riskier because lenders have to keep the loans on their books or sell them on a smaller secondary market, lenders are reporting that the jumbo loan market performed much better during the recession than the conforming loan market. As a result, lenders are now competing for jumbo loan customers.

Chase Bank Lowers the Bar

Following the recession, lenders tightened loan requirements on jumbo loans much the way they did for conforming loans. Recent general jumbo loan requirements have been:

  • A down payment of at least 20 percent for a purchase or have at least 20 percent equity in a refinance.
  • Have a FICO score of 740 or higher.
  • Documented income.
  • Take out an adjustable-rate loan, because fixed-rate jumbos are relatively rare.
  • Your allowable monthly mortgage payment is no more than 38 percent of your income before taxes.

On August 5, Chase bank announced that it has lowered the requirements for its jumbo loans. By easing its standards, the bank is hoping to gain more customers. “The performance we had on jumbo loans … has been fantastic. We think we are able to make high-quality loans to high-quality customers,” said Steve Hemperly, head of mortgage originations at JPMorgan Chase & Co. The changes include:

  • Lowering the down payment to 15 percent.
  • Lowering the FICO score to 680.

“We want to make sure homebuyers can easily understand the benefits of financing with Chase,” said Steve Hemperly, head of mortgage loan originations. “Everyone in the home-buying process – from consumers to real estate agents and mortgage bankers – can more easily understand how we can help them close on a loan fast,” said Sean Grzebin, head of Retail Lending.

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BioAuthor bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 35 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

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