Right now there is very little difference between jumbo (aka non-conforming) and conforming mortgages with 30 year fixed rates. Rates change constantly and sometimes there may be larger price difference between conforming and jumbo mortgage rates.
With the appreciation homes are seeing in the greater Seattle – King County area, home owners who purchased their home a couple years ago using an FHA mortgage may now be able to refinance into a conventional mortgage. FHA mortgages are often used when a home buyer needs a lower down payment option or if credit scores are lower. FHA jumbo mortgages offer home buyers lower down payment with higher loan amounts than what conforming mortgages will permit. There are many reasons why someone might opt for an FHA mortgage when buying a home.
A 10/1 ARM is an adjustable rate mortgage where the interest rate is fixed for the first 10 years and then may adjust at the 121st payment (after the 10 year “fixed period” is over).
After the first adjustment on the 121st month, the rate will adjust annually on the anniversary of the first adjustment date.
A “jumbo” (aka non-conforming) mortgage typically requires at least 20% down payment. Mortgage Master is now offering a non-conforming jumbo mortgage that will go up to a 90% loan to value (10% down payment) with lender paid mortgage insurance (lpmi). In the greater Seattle/King County area, jumbo mortgages are any loan amounts over $506,000 for a single family dwelling (this is also true for homes in Snohomish and Pierce County). In most other Washington state counties, the conforming loan limit is $417,000. Click here for a complete list of conforming loan limits in Washington state for 2014.
Reuters reports that Denise Dunckel, a spokes person for the FHFA recently stated “a gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayer’s mortgage risk exposure”.
Today HUD issued a press release confirming pending changes to help bolster FHA’s capital reserves.
“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said Galante. “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”
Some of the changes to take place with HUD have already been announced. Here are a few points from today’s press release
- FHA annual mortgage insurance will remain on the mortgage for the life of the loan. This is the mortgage insurance that is paid monthly. Once this goes into effect, home owners will need to either refinance to a non-FHA loan or pay it off to no longer have mortgage insurance.
- Mortgage insurance is set to increase. The annual mortgage insurance (remember, this is the one that is paid monthly) is set to increase by 0.10 basis points. FHA Jumbos will see an increase in the mortgage insurance by 0.05%.
- FHA Jumbo’s will have a larger down payment requirement. Currently a home buyer can do as little as 3.5% down on all FHA insured mortgages. Once this goes into effect, the minimum down payment for an FHA jumbo will be 5%. In the greater Seattle area, loan amounts over $417,000 and up to $567,500 are currently considered “FHA Jumbos”.
- Manual underwrites for credit scores below 620 with debt to income ratios over 43%. Currently, I believe the lowest credit score our company can do for an FHA insured mortgage is 640.
We are waiting for HUD to issue Mortgagee Letters before this goes into effect.
If you obtained a high balance mortgage over the current limit ($506,000 in King, Pierce and Snohomish Counties) and missed the opportunity to refinance before the loan amounts were reduced, you may still have some options worth checking out. Especially with Fannie Mae hinting that loan limits may be reduced further in just a few months, effective January 1, 2012. FHA loan limits may be further reduced in 2012 as well. We typically learn what 2012 limits will be in November. The gap between yesterday's higher loan limits and conforming/FHA loan limits may actually widen in a few months making most of these scenarios tougher to obtain in 2012.
Consider a Jumbo/Non-Conforming Mortgage. Fixed rates or adjustable rate mortgages may be worth your consideration depending on your financial plans. Non-conforming mortgages are for well qualified borrowers and require a minimum credit score of 720 and a maximum loan to value of 80%. Loan amounts of $506,001 and higher are now considered a jumbo in King County as well as Snohomish and Pierce.
Cash In Refinance. Not happy with how your investments are doing in the stock market? Some home owners are electing to use their savings or investments in to bring their principal balance down to the conforming loan limit.
Piggy Back Second Mortgage. We currently are able to go up to 85% of the appraised value with a second mortgage. The loan amounts can be structured to keep the first mortgage at 80% of the loan to value and/or at the county high balance conforming limit. Home owners need to be well qualified with credit scores of 720 or higher. HELOCs and amortized fixed rates are available.
FHA Loans. If your existing mortgage is an FHA loan, you may be in luck. Although FHA loan limits were reduced on October 1, they are allowing streamline refinances of the former temporary higher loan limits. UPDATE: FHA LOAN LIMITS FROM NOV 18, 2011 – DECEMBER 2012 ARE $567,500 IN KING, PIERCE AND SNOHOMISH COUNTY.
VA Mortgage Loans. Unlike conforming and FHA loans, VA elected to not reduce their loan limits (technically the guarantee) for the remainder of 2011.
With mortgage rates at a historic lows, it may be worth your time to contact a licensed mortgage originator to review your options. Whether or not you should refinance depends on your personal goals and financial scenario. If your home is located anywhere in Washington, I'm happy to provide you detailed written rate quotes with no obligation.