The Skinny on Jumbo Loans

The latest S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reveals that overall home price growth continues to show signs of slowing, a good sign for homebuyers looking to break into the market. However, many metro areas posted above average price gains, and affordability in those cities is a major concern. For example, prices rose 13.5 percent (year-over-year) in Las Vegas; 9.9 percent in San Francisco; and 8.4 percent in Seattle. At the same time, the pent-up demand for homeownership is causing a squeeze for many families who are ready to buy but are finding it difficult to qualify for standard mortgage products. Further, Millennials are the most active homebuying cohort, almost two-thirds of those without mortgages likely don’t have sufficient credit to qualify for prime-rate, traditional mortgages.1

Currently, the conforming loan limit for a standard or Qualified Mortgage is  $484,350. To put that into perspective, Zillow reports that the median sales price for homes in California is $485,800. That means that approximately half of all homes sold in the state will require either a hefty down payment, or some form of non-QM or “jumbo” loan (a loan in excess of the conforming loan limit). It’s not just California either – potential homeowners face these same challenges in large swaths of the country. Roughly 6.7 million homes in the U.S. would require a jumbo loan, even assuming a 25 percent down payment

But are these post-financial crisis non-QM/jumbo loans safe? According to The Mortgage Report, an industry publication, “the average non-agency borrower has a loan balance of $436,000; FICO score of 699; loan-to-value (LTV) of 79 percent; and debt-to-income of 38.7 percent.” Also, these loans undergo a significant amount of underwriting to vet the borrower, the property, and the numbers.  Further, when it comes to performance, the 60-day or more delinquency rate for non-QM loans hovered just under 2 percent. That’s compared to the delinquency rate for conventional loans at 3.45 percent and FHA loans at 8.70 percent as of second quarter 2018, according to the MBA.

Not only are today’s non-QM and jumbo loans safe, but Verus Mortgage Capital offers responsible solutions for credit-impaired borrowers, including self-employed and foreign nationals, with loan amounts up to $5 million and LTVs up to 95 percent. Income-only options are available, as well as recent bankruptcy, foreclosure or short sale / DIL, and FICOs down to 500 with full documentation.

Bottom line – many of your applicants who are looking to purchase a home today may need a jumbo and/or non-QM loan. Mortgage lenders are beginning to ramp up their efforts to meet this need, but make sure that you are working with an expert team so you can guide your borrowers through the process from qualification to home ownership.

 

  1. https://www.experianplc.com/media/news/2018/experian-study-finds-most-millennials-need-to-improve-borrowing-behaviors-before-homebuying/

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