The median price for a home in San Francisco is about $1.3 million, according to real estate site Zillow.
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There’s one part of the mortgage world that’s harder for some would-be home buyers to access: Jumbo loans.
While there are signs that lenders may be easing their requirements for these larger mortgages, the squeeze that started when the coronavirus pandemic hit the U.S. economy in March has continued, experts say. For consumers, it means more roadblocks to buying a pricey home or refinancing a big mortgage.
“It is truly a problem in the real estate market,” said Al Bingham, a mortgage loan officer with Momentum Loans in Sandy, Utah.
By definition, jumbo mortgages — also called “non-conforming” loans — do not conform to lending limits imposed by the government for mortgages backed by Freddie Mac and Fannie Mae. In most places, that ceiling is $510,400 (for 2020). In some spots — Alaska, Hawaii, Guam and the U.S. Virgin Islands — the cap is $765,600.
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However, in high-cost areas, it’s not hard to exceed that amount. For example, the median price for a home in San Francisco is about $1.3 million, according to real estate site Zillow. That compares to the national average home value of roughly $248,800.
Pre-coronavirus, the jumbo mortgage market relied on investors (often banks) to purchase the loans they originated. In the face of economic uncertainty and continuing high numbers of new unemployment claims — which means it’s trickier to predict who won’t default on a loan — that secondary market has largely dried up.
“There are fewer investors interested in buying those loans,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
This investor pullback means lenders now often must keep these mortgages in their own portfolio — and retain the risk.
“There are a lot of competing demands for bank portfolios,” Fratantoni said. “Households have maxed out their lines of credit, there’s the [Paycheck Protection Program] … and banks have less space for jumbo loans.”
For consumers who would need one of these mortgages, whether for a refinance or a home purchase, it’s likely they’ll see higher credit score requirements than they would have at the start of 2020, as well as a larger minimum down payment and higher cash reserves.
These loans also tend to require more due diligence on the part of the lender, which means borrowers have to produce things like bank statements, tax returns or other evidence proving their ability to repay.
The average rate for a 30-year fixed-rate jumbo mortgage was 3.52% as of July 3, down slightly from 3.59% a week earlier, according to data from the Mortgage Bankers Association. Points paid — each point equals 1% of the loan — increased to 0.36 from 0.31.
By comparison, conforming loans came with an average rate of 3.26%, down from 3.29%, with points decreasing to 0.35 from 0.36.
Be aware that you might see bigger differences in jumbo loan terms from lender to lender than you would with Fannie and Freddie-backed mortgages.
“On the conforming side of the market, competition is so fierce and there are so many lenders involved that you don’t see a lot of dispersion of rates across lenders,” Fratantoni said.
In contrast, he said he’s seen a quarter- to a half-percentage point difference “for essentially the same loan across lenders” in the jumbo market.
“That’s an enormous difference for jumbos,” he said.
While it may be harder to qualify for a jumbo loan than it was just months ago regardless of where you apply, at least one major lender has eased its jumbo refinance requirements for existing customers after tightening them several months ago: If you hold assets — regardless of the amount — with Wells Fargo, you can pursue a jumbo refinance there. It also applies to current mortgage customers and those who have home equity line of credit through the bank.
This is a change from a temporary requirement imposed in early April that customers have at least $250,000 in assets at Wells Fargo to be eligible for its jumbo refinancing program.
The bank’s shift, however, does not apply to non-customers. If you want to refinance a jumbo mortgage at Wells Fargo, you’d need to transfer $1 million or more in assets to the bank.
That doesn’t apply to purchases. Non-customers may be eligible for other mortgage loan products beyond jumbo refinances without having to move assets there, said a Wells Fargo spokesman.
As for how to find jumbo loans, you can do your research or go through a mortgage broker, who typically has access to a variety of available programs.
“I advocate both,” Fratantoni said. “Do your own homework, but if there’s a broker you work with … they might be good at identifying [options] you might not see.”