February 27th, 2014 1:52 PM by Richard T. Cirelli
Jumbo Rates – Better Than Conforming?
There has been a lot of press about this in the past few months and I’m often asked “Is It True”?
The short answer is “yes”, with conditions.
What Is A Jumbo Loan?
First, let’s understand the difference between a Conforming Loan and a Jumbo.
A Conforming Loan is one that conforms to the guidelines set forth by Fannie Mae and Freddie Mac, the two Government agencies responsible for buying loans from virtually all lenders. The maximum conforming loan amount varies by County. It is $625,500 in Orange and Los Angeles counties, $546,250 in San Diego County and $417,000 in the less expensive home markets.
A Jumbo Loan is simply one that is larger than a Conforming loan.
What is the Difference in Rate?
With both Conforming and Jumbo loans, there are various factors that impact the rate. Therefore, not everyone will get the same Conforming or Jumbo Rate. The typical factors are Down Payment or Equity, FICO Score, Loan Amount, Occupancy, etc.
When comparing “base rates” for Conforming vs. Jumbo loans, rates are nearly the same. But, Jumbo loans will typically have adjustments for the various factors mentioned. And, since Jumbo loans are not sold to Fannie Mae and Freddie Mac, each lender is free to set their own rate and underwriting parameters. As a general rule, Conforming loans allow lower FICO Credit Scores, Higher Loan-To-Value ratios and require less Cash Reserves. So, until we know all of the borrower’s factors, and shop among the various lenders, the final rate is not known.
Why Is There a Difference in Rate?
Traditionally, jumbo rates have always been higher than Conforming. The spread has ranged from .25% to more than 1% in the past. So, why the lower jumbo rates now? There are a number of factors. For one thing, the Government has gradually raised the cost of conforming loans. Secondly, since rates began to rise last summer, the demand for refinance loans has lessened, forcing lenders to find other loan types to make up for the decreased demand. And as home values have risen and confidence returns in the real estate market, there has emerged a new secondary market in which lenders can now sell their Jumbo loans like they can with Conforming loans.
As independent Mortgage Brokers, we have access to multiple lenders, products, programs and rates. Our job is to shop among the various sources for the best terms to fit the clients’ needs.
It’s exciting to see so many Jumbo products returning to the mortgage market, including even a “Stated Income” loan. Please call me for more details.