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Jumbo loans going fast

By Judy Martel · Bankrate.com
Wednesday, July 27, 2011
Posted: 3 pm ET

Average jumbo mortgage rates are lower than they have been in years, driving high-end home sales. But the deals won't last long.

"Jumbo mortgage rates, currently averaging 5.17 percent, are near record lows and the spread between jumbo and conforming mortgage rates has narrowed to approximately one-half percentage point," says Greg McBride, CFA, senior financial analyst at Bankrate.com. "While this is still wider than the normal, precredit crunch levels of one-quarter to three-eighths of a percentage point, it is a marked improvement since the dark days of 2008."

Jumbo loans are those generally over the conforming limit of $417,000 set by Fannie Mae and Freddie Mac. Since lenders take on more of the risk with these mortgages, interest rates are typically higher and standards for borrowers stricter.

Three years ago, the limit on conforming loans was raised to as high as $729,750 in some expensive housing locations like Los Angeles. But beginning in October, the federal government will start dropping the highest conforming limit to $625,500 to reflect lower home prices nationwide.

Meanwhile, buyers of expensive real estate are hoping to take advantage of the combination of low jumbo rates and low home prices to get more home for the money, or to trade up to a larger house. But McBride cautions that these larger mortgages come with higher down-payment requirements (20 percent to 30 percent) and borrowers need to have excellent credit. Additionally, the current incentives have a limited shelf life. Once the limit is lowered, more buyers of expensive homes will be pushed into nonconforming jumbo loans with higher rates.

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