First of all what the heck is the definition of a jumbo home loan?  That means if you plan to borrow more than $510,400 (as of today) to purchase your new home, then you are considered in the “jumbo” loan category. With home values increasing, you may find yourself in need of greater financing to make your homeownership dream come true. That’s where a jumbo loan comes in. Jumbo loans are loans that exceed the conforming loan limit. If your required loan amount is even $1 over your area’s conforming loan limit, it falls into jumbo loan (or a non-conforming loan) status.   Just keep in mind jumbo loans are issued by private lenders and are not backed by government-sponsored entities (GSE’s) like Fannie Mae or Freddie Mac— so, requirements may vary.   Jumbo loans are considered risky and require higher credit scores. Expect to have at least a 700 FICO score and a DTI (debt to income) ratio under 43% (but preferably closer to 38%).  If you are self-employed, you will have a few extra steps. 

During COVID-19, Mortgage credit was tightening. Lenders fear they’ll take in less money, whether it’s because of defaults on existing and future loans or mortgage forbearance programs that allow borrowers to delay payments for up to a year.  Some lenders are still increasing FICO score and down payment requirements. Some of the lenders offering low-documentation loans has all but dried up. Jumbo mortgages have also grown rarer.  Lenders are concerned … with the severity and the duration of what is going on from the COVID-19 pandemic.  Credit still isn’t as tight as it was in the wake of the 2008 financial crisis. Back then, home prices had plunged, but many families were prevented from buying, losing out to investors who gobbled up the homes. 

What happens next depends on how quickly the economy rebounds. More than 30 million Americans have filed for unemployment benefits and over 8% of households have filed for forbearance relief.  

The road to recovery is still uncertain as we start emerging from COVID-19.  Jumbo financing remains available for qualified clients, but interst rates are higher and turn-times for underwriting approval are much slower.  Rates are higher because of extra risk, excess demand, too little capacity, and too few competitors (now that many of the “BIG” mortgage banks have pulled out of the Jumbo market).
Jumbo financing is much more difficult for refinancing. Many lenders are simply refusing to do jumbo refinances now and others are limiting refinances to only exceptionally strong borrowers.
We like to remind borrowers that the jumbo market will very likely spring back to life once the COVID-19 crisis ends.  And when it does, rates will likely plummet, enabling current jumbo borrowers to refinance into lower rates.  This is something jumbo buyers should keep in mind if they are concerned about current jumbo interest rates.
We have a surprisingly large number of buyers still in the market.  Because lending
 guidelines and asset positions are changing every day, we encourage all agents and borrowers to contact their lender prior to making every offer to ensure the pre-approvals still stand.
Reach out if we can help!Aundrea Beach-Greco
NMLS 333739
(702) 326-7866