A few months back, if you were searching for a jumbo loan (a loan that exceeds $417,000 -- the maximum mortgage size that can be bought by Fannie Mae or Freddie Mac), you’d have had to pay a premium. Due to the turbulence of today’s housing market, many lenders found it more difficult to sell these nonconforming loans to investors. As a result, they either increased the rates on these loans or stopped offering them altogether.
But this month, 30-year jumbo loan rates have started to return to more normal levels. The loans have become available once again at better rates with stricter qualification guidelines designed to reduce loan risk.
If you’re in the market for a jumbo loan, here’s what to expect:
Credit scoreYou need excellent credit to get the best rates on a jumbo loan today. That generally means a credit score above 720. If your score is between 660 and 720, chances are you can still qualify at a slightly higher rate, especially if you pay points (an up-front fee that’s typically equal to one percent of the loan amount). With a score below 660, your options may be limited.
Full disclosureGone are the days when it was fairly easy to obtain a “stated-income” jumbo loan provided you had good credit and sufficient equity. This was particularly helpful for those who were self-employed and who may have earned a good income but wrote much of it off for tax purposes. Most lenders today expect you to be able to document your income even if you’re self-employed.
Down paymentTo get a competitive rate on a jumbo loan, you’ll most likely need a down payment of at least 20 percent. Some lenders will grant jumbos at a higher rate with as little as 10 percent down but most lenders have become less willing to take on the added risk of a jumbo mortgage with a high loan-to-value ratio.
By requiring stronger credit and better documentation from borrowers, lenders have taken steps to protect themselves. And borrowers need to protect themselves as well by making sure to obtain full disclosure on the terms of their loan. Never sign anything you don’t understand completely. Obtaining a good mortgage rate is just the beginning -- make sure you are also aware of the rules governing your loan agreement so you won’t be hit with any financial surprises down the road.