Jumbo Mortgage Rates Falling

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(Jason Marsh is a well-respected mortgage broker with Mortgage Services III, LLC in Waukesha, Wisconsin. His firm has been a trusted source for mortgage financing for more than 30 years.)

There has been a change in the jumbo mortgage market. Up until recently jumbo mortgage rates were as much as two percentage points higher than conventional mortgage rates. Last year at this time a conventional mortgage was at about 4.875 percent, whereas a comparable jumbo mortgage was as much as 6.875 to 7.5 percent. Recently that pricing has changed dramatically.

Today you should be able to get a 30-year jumbo mortgage in the 5.5 percent range. Of course rates and terms will vary from funding source to funding source, and it might become somewhat dicey if the new jumbo is replacing a first and second mortgage. A second mortgage is often treated as a cash-out transaction and that may get in the way of getting a jumbo.

The defining difference between a conforming mortgage and a jumbo mortgage is the size of the loan. Fannie Mae and Freddie Mac are the federal government organizations that purchase mortgages from lenders and securitize them so that lenders have more money to issue mortgages with the goal of making mortgages more readily available. Each year, the federal Housing Finance Agency updates the conforming loan limits, which specify the maximum mortgage size that Fannie Mae can purchase from lenders. For 2010, the general mortgage limit is $417,000.

Interest rates on jumbo loans are typically higher than conforming loans because of the risk the lender assumes by issuing the loan, and because the lender has to keep the loan rather than selling it. In addition, jumbo loans are almost exclusively adjustable rate mortgages whereas conforming loans can have either an adjustable rate or a fixed rate.
Lenders have higher standards for jumbo loans. In order to qualify for a jumbo loan, you will need at least a 20 percent down payment, a credit score of 720 or higher, and verified income to prove you can repay the loan.

Jumbo mortgages also have caps on DTI ratios (debt to income ratios) of 45 percent. Your DTI is determined by dividing all of your monthly debt including your mortgage by your income. For example, $4,500 in total monthly debt divided by $10,000 in gross income equals 45 percent . You qualify!

*** Important note regarding income: It is calculated on your gross income and not your net take home pay after taxes.

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