Jumbo mortgage rates are inching closer to conforming mortgage rates; what does this mean for purchasers?
With lenders’ renewed confidence in luxury home values, “jumbo” rates have come down dramatically and are nearly the same as “conforming” rate loans.
During 2008 and 2009, when lenders were nervous about the luxury home market, the interest rate spread between a jumbo loan (>$417,000) and a conforming loan (=/< $417,000) was 1.5%. The higher jumbo rate, coupled with stricter down payment and underwriting guidelines, paralyzed the luxury home market.
During 2012, the differential was .5%. Today, we are seeing only a 1/8% rate difference in 30 year fixed rates between jumbo and conforming loan amounts.
The reasons for the shrinking interest rate spread are:
– Higher fees charged by Fannie Mae and Freddie Mac are increasing the rates of conforming loans
– Demand for luxury homes are on the rise resulting in more stable luxury home prices; lenders are more comfortable with luxury home collateral
– Lenders are seeking to build a customer base or cement established relationships with high net worth client
Although the jumbo market we have now is very conservatively underwritten, it is the best it has been in the past years. Some lenders allow up to 85% loan to value with most offering up to 80%.
The lenders are looking at the client in the jumbo loan sector and they see clients with liquidity, strong earnings, and ability to withstand financial shock. Lenders are trying to find ways to cater to these clients.
And, that’s a good thing for jumbo borrowers right now.
Article written by terrific lender and friend, Diane Pyshos.
For more information about luxury home loans, contact Diane Pyshos at A&N Mortgage