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by G. Steven Bray
One of the more interesting developments in the mortgage industry this year has been the competitiveness of jumbo loans. Remember that a jumbo loan is one with a loan amount greater than $417k, the conforming loan limit in TX. Traditionally, jumbo loans have had slightly higher interest rates than conforming loans because they don’t have the implicit backing of the US government through Fannie Mae and Freddie Mac.
As mortgage credit has thawed a little, mortgage bond investors, particularly the large banks, have realized that well-heeled jumbo mortgage customers make good prospects for other financial services. As a result, they’re taking a more holistic view of the customer relationship and offering jumbo mortgage rates that can be lower than conforming rates.
However, the jumbo loan process isn’t all roses and wine. Given that the banks often are holding the loans in their portfolios, the loan guidelines tend to be a bit stricter. In particular, most jumbo programs require the homebuyer to have significant cash in the bank in addition to what’s needed for closing, and most programs require 20% down.
That last requirement may be changing. Several mortgage insurance companies have started offering insurance for jumbo loans with as little as 10% down. The interest rates are maybe a half point higher, but in the current ultra-low rate environment, that’s still a bargain. For homebuyers who want to conserve their cash or savvy homebuyers who want to lever their money, this could be an attractive option.