Need a Jumbo Mortgage? Lenders Are Raising the Bar
NEW YORK – Some homebuyers who need a jumbo home loan may find it harder to get one as lenders tighten their qualification terms.
Buyers may face a stricter credit score requirement and/or a demand for a larger down payment requirement or a demand for a higher cash reserve requirement as some lenders grow stricter, CNBC reports.
Jumbo mortgages, also known as “nonconforming loans,” allow buyers to qualify for higher-value loans to purchase homes, typically in more expensive areas. In many areas this year, the lending cap is $510,400 for a “conforming loan,” but in some pricier areas of the U.S., a jumbo loan starts at values of $765,600 and higher.
However, some borrowers are reportedly struggling to qualify as banks tighten requirements during the pandemic. “It is truly a problem in the real estate market,” says Al Bingham, a mortgage loan officer with Momentum Loans in Sandy, Utah.
Prior to the pandemic, investors or banks mostly backed the jumbo mortgage market by purchasing loans they originated. But the secondary mortgage market has tightened as it faces a lot of unknowns.
“There are fewer investors interested in buying those loans,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association. That means lenders who can’t sell the jumbo mortgage loans would need to keep them in their own portfolios, which carries a higher risk for the lender. The change applies to homebuyers and homeowners who hope to refinance into a jumbo loan.
The change varies by lender. For example, banking giant Wells Fargo has actually eased up on its requirements for a jumbo mortgage with existing customers who only want to refinance. However, it’s requiring new customers to transfer $1 million or more in assets to the bank to be eligible – and Wells Fargo says this system doesn’t apply to jumbo mortgages for home purchases.
The best advice for home shoppers and refinancers? Mortgage experts say they should shop around for the best rates and terms because jumbo loan requirements can differ drastically from one lender to the next.
Source: “You Might Have a Tough Time Getting a ‘Jumbo Mortgage’ During Pandemic. Here’s What to Expect,” CNBC (July 13, 2020)
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