What is a Jumbo Mortgage and Where to Find One
A jumbo mortgage is a one-to-four family residential loan whose principal balance exceeds the conforming loan limit for that year as set by Fannie Mae and Freddie Mac. As this was written in 2012, the loan limit for a one-family residence throughout most of the US is $417,000. However, Fannie and Freddie allow higher loan limits in high-cost areas on a county-by-county basis. For example, the loan limit is $417,000 in rural areas of California, but in some areas of Los Angeles and San Francisco the limit is $625,500. Some in the home lending world refer to high-cost area loans as “super-conforming” loans.
The conforming amount is adjusted annually based on changes in U.S. housing prices. Present conforming limits have not changed since 2006. Note the limits discussed here are separate from FHA loan limits.
Jumbo Mortgages at a Glance
|Conforming Mortgage Limits 2012|
|Units||Contiguous States, District of Columbia, and Puerto Rico||Alaska, Guam, Hawaii, and the U.S. Virgin Islands|
|“Super-Conforming” Mortgage Limits 2012|
| • FHFA’s list of high-cost areas
• Fannie Mae's Geocoder address lookup tool
Because jumbo mortgages do not conform to the limits set by Freddie Mac and Fannie Mae, mortgage originators look to other investors, such as banks and institutional investors, to fund jumbo mortgages. these lenders charge slightly higher rates on jumbo mortgages and tend to have higher down-payment requirements than what is expected from borrowers of conforming loans.
in theory, there is no maximum amount for a jumbo mortgage. in practice, loan originators work with several investors, each of which has their own limits for maximum loan amount and borrower requirements. alternatively, a loan originator may keep a jumbo in-house and never sell it to an investor.
historically, jumbo mortgages accounted for 20% to 25% of all originations of conventional loans — those that are neither insured nor guaranteed by the federal government — and about one-third of jumbo originations are securitized. the market for mortgage-backed securities (mbs) collateralized by jumbo loans is the fourth largest segment of the u.s. secondary mortgage market, after the markets for mbss guaranteed by fannie mae, freddie mac, and ginnie mae.
california has the highest volume of jumbo mortgage originations. in 2005, for example, about 60% of the dollar volume of jumbo loans were for california loans. new york ranked second with 5% of all originations of jumbo loans. california’s position reflects a greater number of jumbo loans than the other states, rather than a larger average loan size.
in 2012, however the amount of funding for non-conforming loans has shrunk. as of october 2012, jumbo mortgages account for only 10% of mortgage originations. this is half of the historical average. not only is the ratio of jumbo mortgages shrinking, the dollars going into jumbos have fallen from $2.3 trillion in mid-2007, the peak of the jumbo market, to $970 billion in 2012.
where to find a jumbo mortgage & what to expect
“jumbo investors are a precious commodity,” said jeffrey walker, president, consumer direct lending at the federal savings bank in chicago. “money center banks are retaining these in their portfolio, (and) there is essentially no secondary market. these are the new under-served borrowers, and harp 3.0 will hopefully focus on providing some opportunity for this segment (although) not through fannie or freddie,” walker said.
bills.com partners with multiple lenders who offer mortgages for people who need conforming and non-conforming loans, including jumbo loans. walker said jumbo lenders expect borrowers to be well-heeled with the following characteristics:
- ltv requirement: maximum 80% for new purchases and refinances. expect larger down or lower ltv equity position if your credit score is below 680.
- excellent credit scores: as low as 680, but 720+ is more desirable.
- dti: 45% or lower.
- no second mortgages
typically, jumbo lenders want to see six months in reserves , a 2-year job/income history, either a primary or second home, and no lending for investment properties. the cash-back maximum on cash-out refinances is usually $100,000, walker said. jumbo lenders have flexibility in some criteria. the usual advice applies: it pays to shop.