With conforming mortgage rates trending higher largely due to the end of Fed’s support of keeping mortgage rates at QE artificially sweet low levels, we’re seeing less difference between conforming mortgage rates and non-conforming mortgage rates (aka Jumbo mortgages). In most Washington state counties, a jumbo mortgage is any loan over $417,000 (for a single family dwelling). In the greater Seattle area (King, Pierce and Snohomish counties) we have “conforming high balance” mortgages which will allow loan amounts from $417,001 to $506,000 before it’s considered a non-conforming (or jumbo) mortgage. Here’s a link to 2013 Washington State conforming loan limits.
Jumbo mortgages have been slowly returning since the "mortgage meltdown" and the pricing is becoming more competitive as lenders re-enter the non-conforming markets. Loan amounts that are higher than conforming loan limits have different underwriting guidelines than conforming, typically requiring additional reserves (assets) from the borrower, lower debt-to-income ratios and higher credit scores. It's not unusual to have underwriting require a second appraisal after reviewing the first one with a fine tooth comb. Because these loans are not backed by Fannie or Freddie, they tend to be scrutinized more than mortgage with a conforming loan amount.
The higher the loan amount is, the more reserves the borrower is required to have. One lender I work with requires 6 months reserves for loan amounts of 1 million or less and 12 months reserves if the loan amount is over 1 million.
In the greater Seattle area (King, Snohomish and Pierce Counties), a jumbo loan currently is any residential mortgage with a loan amount higher than $567,500 (click here for a list of loan amounts by county). If you're eligible for a VA loan, jumbos are a different story. This post will focus on non-conforming jumbos.
Non-conforming loans have several factors that impact pricing including credit score, loan to value and loan amounts. Here's a comparison of rates using a 30 year fixed based on current pricing based on home valued at 1.3 million, purchase with credit scores of 740 or higher and taxes and insurance included in the mortgage payment:
Loan amount of $1,000,0000: 5.625% priced w/1 point (APR 5.767) NOTE: 20% down payment would not work with this scenario as most lenders require 25% down when loan amounts are over 1 million.
Loan amount based on 75% loan to value: $975,000: 5.500% priced w/1 point (APR 5.641).
Loan amount based on 60% loan to value: $780,000: 5.375% priced w/1 point (APR 5.522).
For reference, I'm quoting 5.00% for a 30 year fixed a high balance conforming ($567,500 - $417,001 loan amount) at an 80% loan to value (apr 5.147). If the loan to value is 60% or lower, the rate is reduced to 4.875% (apr 5.024).
Loan amounts from 1.5 – 2 million typically require a down payment of 30%.
NOTE: Adjustable rate mortgages are available and 30 year fixed with interest only payments (requires more equity and higher credit scores than fully amortized jumbos). I'm using a 30 year fixed amortized for comparison sake to illustrate the difference in rates based on various down payments. For your personal rate quote for homes located in Washington state, please contact me.
The Government has reached out to home owners who have conforming or FHA financing. However if your mortgage is a jumbo (aka non-conforming); your options for refinancing are few…there is no HARP for you. Many home buyers used various types of mortgages to buy their dream or "move-up" homes a few years back during the loosey goosey days of mortgages and now are either dealing with or waiting for these large mortgages to adjust.
Recently I've added Jumbo mortgages back to my Friday rate quotes, including fixed and a couple of adjustable rates mortgages. The difference now is that people must actually qualify for their mortgage. No more stated income or qualifying at a teaser low interest only payment. And as I mentioned, there is no assistance for you unless your mortgage servicer is willing to do a modification.
As Diana Olick's video above addresses, banks have a large "bucket" of mortgages that are getting ready to go into foreclosure. Many are jumbos. Even if Obama's programs for loan modifications and refinances reached out to the high end home owner in need of a lower mortgage payment; if the home owner has lost their job, odds are against them.
The timing of no available mortgages for the high-end home owner couldn't be worse. For the past few years, the pricing was not attractive for jumbos. Someone with an option ARM, for example, would not want to nor probably qualify for the much higher rates if they wanted a more secure fixed rate product. This also prevents the jumbo home owner from being able to sell their home should they decide they can no longer afford it. Their home's potential prospects are limited to those with significant cash down payment to have a "high balance" loan limit (currently in the Seattle area, the 2009 high balance loan limit is $567,500).
The Seattle-Bellevue area also has a significant amount of high end homes. How many are waiting to go into foreclosure? This is one sector of the market who odds are will not see a bail out.
My wife and I found a house we are in love with. I wanted to write and tell you our situation, maybe you can tell us if we are even in the "ballpark". The house we like is 620,000. We have 20% to put down. We have very little debt and well documented income. I have a low credit score, 660 or lower. Is this worth pursuing or is the credit score too low?
- Credit history.
- Loan limits.
Unfortunately the loan limits where this couple are considering to purchase are much lower than what we have in the King County area. They’re wanting to buy in Clark County which currently has a temporary jumbo limit of $418,750. They would need about $200,000 for their down payment with the seller paying closing costs and prepaids (est. at $12,000). Or they could opt for conforming financing with a loan amount of $417,000 and try to get a conventional approval (with a larger down payment, it’s possible).
If they were buying in King, Pierce or Snohomish County, the loan limit is currently $567,500 and would have the option of putting less than 20% down (as low as 3.5%), should they wish assuming they qualify for the payment.
Regardless of where the property is located, the last 12 months of credit history is more critical than credit score (as long as the credit scores are 600 or higher) for a purchase using an FHA insured loan.
FHA loans are full doc and will need to be sourced and seasoned. Buyers should be prepared to provide their last 2 years of W2s (and possibly tax returns) as well as at least 30 days of income on their paystubs.
Remember, we should be learning in early November what the new jumbo loan limits will be. I’ll keep you posted!
If you’re buying a home $520,000 or below over the next year, you won’t really be impacted by the reduced FHA Jumbo and Conforming Jumbo limits. However, if you’re considering buying a home with minimum down, you’re losing $45,000 of financing power on January 1, 2008 with a $522,100 loan limit.
I wrote an article at Rain City Guide in June about how much home $17,550 can buy you in King, Pierce and Snohomish County with the current loan limit of $567,500. The answer: $585,000 utilizing a FHA Jumbo. Once the new loan limit is in place for our region, the most you can buy with minimum down will be closer to $540,000. Although the new minimum required investment at 3.5% (effective October 1, 2008) will increase the amount required to $18,900 (based on a $540,000 sales price).
Want to do conventional 20% down and stay away the "true jumbo" rates by utilizing the maximum conforming jumbo? Currently, a sales price (or appraised value in the case of a refinance) of $709,000 will get you pretty close to the existing limit at $567,200. As of January 1, 2009, that sales price (or appraised value) is reduced to $652,500 for a loan amount of $522,000.
Refinances may also be impacted depending on what the payoffs are on the existing balances and if it’s classified as a "cash out" refinance (second mortgages not obtained from when you purchased your home is considered cash out) which have tougher guidelines than a "rate term" refinance. Underwriting guidelines continue to tighten and will continue as well.
As always, I highly recommend that if you are considering buying or refinancing in the next year, to contact a local Mortgage Professional at your earliest convenience. The loan limits may not even impact you, it’s never to early to prepare considering our current climate.
With the passage of HR 3221, the minimum required investment of a home buyer utilizing a FHA insured mortgage is increasing from roughly 3% to 3.5% effective January 1, 2009. You may think this sounds like small change, but with larger loan amounts, this adds up.
For example, if a home buyer is utilizing a FHA Jumbo and they are buying a home priced at $500,000. Their current minimum required down payment of 3% is $15,000. Effective January 1, 2009, the minimum required down payment of 3.5% is $17,500; a difference of $2,500 for the amount required to invest into the transaction. With a home priced at $300,000; the current required investment from the buyer would be $9,000. As of January 1, 2009, the new amount required will be $10,500.
What does this mean to you?
If you are planning to buy a home utilizing a FHA insured mortgage, be aware of the changes to the minimum down payment requirements. After December 31, 2008, you'll be required to come up with additional funds towards your down payment which may be a gift or loan from family members.
If you are wanting to take advantage of the lower down payment requirement, meet with a Mortgage Professional who is qualified to provide FHA loans (not all loan originators are, you can check HUD's site to verify).
If you would like me to provide la rate quote for a FHA mortgage on a home located anywhere in Washington, please click here.
Editors Note: this post wass been modified to correct the effective date.
November 7, 2008 Update: FHFA has announced the new conforming jumbo loan limits for 2009 which are based on a lower median home price than used here (which was 2008′s limits). Based on these figures, a single family unit will be $506,000 for King, Pierce and Snohomish Counties. Read more here.
Recent legislation, HR 3221 included what the new conforming loan limits will be. Our conforming-jumbo limits will be rolled back slightly to the following effective for all mortgage loans not closed December 31, 2008. Here’s what the new limits will be effective January 1, 2009 (based on HUD’s current median home prices at the time of this post):
King, Pierce and Snohomish Counties:
Single Family: $506,000
$522,100 ($567,500 until 12/31/2008)
$668,350 ($726,500 until 12/31/2008)
$807,850 ($878,150 until 12/31/2008)
$1,004,000 ($1,091,350 until 12/31/2008)
$437,000 ($475,000 until 12/31/2008)
$559,450 ($608,100 until 12/31/2008)
$676,250 ($735,050 until 12/31/2008)
$840,350 ($913,450 until 12/31/2008)
San Juan County:
$546,250 ($593,750 until 12/31/2008)
$699,250 ($760,100 until 12/31/2008)
$845,250 ($918,800 until 12/31/2008)
$1,050,500 ($1,141,850 until 12/31/2008)
Clark and Skamania Counties:
Single Family: $417,000 ($418,750 until 12/31/2008)
Two Family: $533,850 ($536,050 until 12/31/2008)
Three Family: $645,300 ($648,000 until 12/31/2008)
Four Family: $801,950 ($805,300 until 12/31/2008)
Single Family: $417,000 ($437,500 until 12/31/2008)
Two Family: $533,850 ($560,050 until 12/31/2008)
Three Family: $645,300 ($677,000 until 12/31/2008)
Four Family: $801,950 ($841,350 until 12/31/2008)
Watch for my follow up post on what this means to you.
Read my related articles on HR 3221: