Jumbo Mortgages Are Trendy Again… For Now - For years, millions of Americans have been scraping by. They’ve either been just barely able to pay their mortgages, not able to pay their mortgages at all (as evidenced by the millions of foreclosures and short sales), or terrified to invest in the housing market at all. So, as you can imagine, something called a “jumbo mortgage” hasn’t exactly been in high-demand!
However, the times are changing, and jumbo mortgages are trendy once again.
The exact definition of a jumbo mortgage can vary, depending on exactly what state you live in. However, like the name implies, jumbo mortgages are bigger than their “average” counterparts. In most places, if your mortgage is worth more than $417,000 (or, more than $625,501 in some of the more expensive areas of the country), it qualifies for “jumbo” status. That means, in order to actually qualify for it, you’ll need to put more money down and have even better credit that you do for a “regular” mortgage. In today’s day and age – where qualifying for ANY mortgage can be tough – it’s easy to see why jumbo mortgages had fallen off the radar.
Just how low had jumbo mortgages sunk?
In a healthy economy, jumbo mortgages usually account for about 25% of the new mortgages ever year. But once the housing bubble burst, jumbo mortgages only made up 4.3% of new mortgages. Even by 2011, only 11% of mortgages were of the jumbo variety. Throughout 2012, the rate of jumbo mortgages approved grew steadily, and now experts are calling them downright trendy. However, their new-found popularity may not last. Thanks to new mortgage rules just unveiled by the Consumer Financial Protection Bureau, jumbo mortgages could become even harder to get – and even more expensive for homebuyers. The rules, which will not take effect until 2014, could create enough hurdles that they would, in essence, signal the end for jumbo mortgages.
What kinds of changes will these new rules make?
First, the new rules will require jumbo mortgage applicants to provide much more paperwork than they have in the past. If applicants can’t provide sufficient documentation for every specific angle of their loan, they’ll be turned down.
Second, jumbo mortgages do not meet the new “qualified mortgage” criteria that the Consumer Financial Protection Bureau unveiled earlier this month. That means lenders won’t be protected from lawsuits from borrowers if they write them, like they are if they write “traditional” home loans. As a result, banks may be very hesitant to issue jumbo mortgages, because homeowners will have the power to turn around and sue them later, if they default. That may be more risk than banks want to take on. Or, banks may be willing to take on that additional legal risk – for a price. For example, banks may be willing to write jumbo mortgages, but only at much higher rates. That may make them too expensive for homebuyers, who may be purchasing a home specifically to take advantage of the low mortgage rates that we’ve all been hearing so much about. In any event, it looks like the hey-day of jumbo mortgages will come to an end when the new mortgage rules come into effect. So, if you’re in the market for a luxury home, you may have to find another way to finance it!
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