What does it take to get a Jumbo loan in 2009?

The hardest hit niche of mortgage financing during the 2007-2008 mortgage meltdown was the Jumbo financing market.  Because Fannie Mae, Freddie Mac, and the Federal Housing Administration don't purchase Jumbo loans, they require outside capital, and during the mortgage meltdown outside capital was not readily available.  Banks and mortgage companies want to sell most of their loans on the secondary market and the secondary market for Jumbo loans all but evaporated in late 2007.  As the secondary market dried up, banks were forced to increase their Jumbo interest rates, because they require a greater return when they are keeping the loan in their portfolio. 

The lack of Jumbo financing at competitive rates put a halt on the sales of luxury homes, and their prices began a freefall.  Values on many high end homes have dropped 30-50% in the last 24 months.  This further compounded the Jumbo financing problem, because not only did we lack liquidity to make the loans, but the loans themselves had little equity or in some cases were upside down, making it almost impossible to refinance.

The Jumbo market started to rebound in late 2008 as banks began receiving TARP funds, and the recovery has continued this year.  While the credit and qualifying guidelines for Jumbo loans remain tight, the market as a whole is stronger that it has been in years.  Jumbo rates have dropped considerably in the last 60 days as liquidity has come back into the market.

Here is what it takes to get a Jumbo loan at competitive terms:

30% equity in your home

700 or greater FICO score

Ability to verify your income

If you have the above, you can get an interest rate between 4.25% and 4.75% on a 5/1 or 7/1 ARM.  These are the lowest Jumbo rates in years and now is a great time to take advantage.

The hardest hit niche of mortgage financing during the 2007-2008 mortgage meltdown was the Jumbo financing market.  Because Fannie Mae, Freddie Mac, and the Federal Housing Administration don't purchase Jumbo loans, they require outside capital, and during the mortgage meltdown outside capital was not readily available.  Banks and mortgage companies want to sell most of their loans on the secondary market and the secondary market for Jumbo loans all but evaporated in late 2007.  As the secondary market dried up, banks were forced to increase their Jumbo interest rates, because they require a greater return when they are keeping the loan in their portfolio. 

The lack of Jumbo financing at competitive rates put a halt on the sales of luxury homes, and their prices began a freefall.  Values on many high end homes have dropped 30-50% in the last 24 months.  This further compounded the Jumbo financing problem, because not only did we lack liquidity to make the loans, but the loans themselves had little equity or in some cases were upside down, making it almost impossible to refinance.

The Jumbo market started to rebound in late 2008 as banks began receiving TARP funds, and the recovery has continued this year.  While the credit and qualifying guidelines for Jumbo loans remain tight, the market as a whole is stronger that it has been in years.  Jumbo rates have dropped considerably in the last 60 days as liquidity has come back into the market.

Here is what it takes to get a Jumbo loan at competitive terms:

30% equity in your home

700 or greater FICO score

Ability to verify your income

If you have the above, you can get an interest rate between 4.25% and 4.75% on a 5/1 or 7/1 ARM.  These are the lowest Jumbo rates in years and now is a great time to take advantage.