Loan Considerations for Jumbo Mortgages
For the Greater Metro Denver area, any loan amount greater than $417,000 is considered a jumbo loan. Fannie Mae and Freddie Mac assign different thresholds for various regions across the country. For instance, $417,000 is not considered a jumbo loan in a high cost city like San Francisco, yet there will still be higher rates for going above $417K.
Due to the size of jumbo loans, they are considered greater risk for lenders, resulting in higher rates. Rates have fluctuated greatly over the past few years on jumbos. As of today, a 30 year fixed could range from 7% - 8%; a full point higher than the prime rate below a loan amount of $417,000. Five year ARMs are popular on jumbo loans, as they typically price out a half point lower than fixed products.
Frequently, a borrower will need to put more money down on a jumbo loan to mitigate the risk. Investors that purchase mortgages are still skeptical of the lending industry, especially higher risk loans, which is why we haven't been witnessing attractive jumbo rates of late.
To limit the impact on the monthly payment and secure a better rate, many borrowers will take out a first mortgage of $417,000 and then try to find a second mortgage to cover the balance. For example, assume a buyer is purchasing a home for $600,000 and they are able to put 20% down. Instead of taking out one loan at 80% = $480,000, it will likely make sense to split the loan into a $417,000 first mortgage and $63,000 second mortgage. Since the combined loan-to-value is 80%, finding a second mortgage lender should be relatively simple. While the rate on the second will be higher than the first, the blended rate will be significantly lower than the jumbo loan option, resulting in a few hundred dollar savings per month.