Happy New Year. Should old interest rates be forgot, let us remind you how low jumbos could go: 4.03% for a 30-year, fixed-rate jumbo in December and 2.81% for a five-year, adjustable rate jumbo in October.
But expect more uncertainty in the coming year. Last month, the Federal Reserve hinted at raising interest rates in 2015 but gave no indication of when that might occur. As a result, lenders and mortgage brokers are encouraging their clients to lock in now.
“We’re seeing more jumbo loans right now, and the rates are probably the best in years,” says Bill Banfield, vice president of capital markets at Quicken Loans. “It’s a good time to be in the market for a jumbo mortgage.”
To ring in the new year, we asked some mortgage experts for their best tips when getting or refinancing jumbo loans, which exceed limits of government-backed loans, $417,000 in most parts of the U.S. and $625,500 in some high-priced areas.
Get preapproved. To get preapproved, borrowers must provide complete documentation of income, unlike prequalificationl, in which the loan officer may ask just for a stated income. Prequalified buyers in hot markets like New York and San Francisco can prove to sellers weighing multiple offers that they can afford the home, says Brad Blackwell, executive vice president at Wells Fargo Home Mortgage. “You want to be confident in your ability to buy that property,” he adds.
Prepare for paperwork. Overall documentation requirements are much higher than before the real-estate bust, especially for borrowers with more complicated financial profiles, such as self-employed individuals or people with seasonal bonuses, Mr. Banfield says.
Gather paperwork in advance, including pay stubs, tax returns, bank statements for personal and
business accounts and receipts from retirement-account withdrawals, he adds. “Lenders will want to see the source of funds and understand where money is coming from,” he says.
Consider an ARM. With interest rates so low, many borrowers may be tempted just to apply for a 30-year fixed rate mortgage. But rates can be as much as a quarter to half a percentage point lower for a 10-year, adjustable-rate mortgage.
According to mortgage website HSH.com, average
jumbo rates on a 30-year, fixed-rate loan rates were 4.06%, while rates on a five-year ARM were 3.08% for the week ending Dec. 26.
That translates into big savings for jumbo-sized loan amounts, says Alan Rosenbaum, CEO of New York-based Guardhill Mortgage. Seven- and five-year ARMs offer even more rate savings. “Understand and analyze how long you think you’re going to be holding your home and select the appropriate program,” Mr. Rosenbaum says.
Pay more upfront. The down-payment amount determines the loan-to-value ratio, which looks at the loan amount relative to the value of the home. While 20% down has become the standard for most current jumbo mortgages, “the underwriting flexibility and pricing—rates and fees—are generally much better if you can put down a 30% or more down payment,” says Guy D. Cecala, CEO and publisher of Inside Mortgage
Finance.
But don’t let cash flow deter you. In 2014, several lenders offered jumbos with just a 15% or 10% down payment on loans amounts of up to $1 million. Interest rates, however, will be higher, says Tom Wind, executive vice president of mortgage operations at Jacksonville, Fla.-based EverBank.
Some lenders also offer special loan programs for people in certain professions—such as doctors who have high student loan debt but significant income potential, adds John Schleck, senior vice president, centralized sales executive at Bank of America .
Improve or protect your credit score. Minimum credit scores for jumbo borrowers have dropped to as low as 680, but the best rates go to borrowers who score 740 or more, says Mathew Carson, a broker with San Francisco-based First Capital Group. Borrowers with stellar scores in the 780 to 800 range reap the biggest benefits, he adds.
Tap into equity. When rates start to rise, a jumbo borrower who wants to make home improvements should consider a home-equity line of credit or home-equity loan for just the amount needed instead of refinancing the entire loan amount, says Mr. Wind of EverBank.
Leverage existing relationships. Many banks offer relationship discounts to customers who already have substantial accounts, Mr. Schleck says. For example, Bank of America has a rewards program that offers closing cost savings. Wealthy borrowers may find even more flexibility by applying for a jumbo mortgage through a bank’s private banking arm, says Keith Gumbinger, vice president of HSH.com, a real-estate financing website.
Still, shop around. Because lenders in today’s environment typically hold jumbo mortgages within their portfolios, they have more flexibility in setting rates as well as how they qualify borrowers, Mr. Gumbinger says. “Scour the market, as the savings can be appreciable.”
Corrections & Amplifications
An earlier version of this article gave current rates as of Jan. 2. They were as of Dec. 26. Also, the definitions of preapproved borrowers and prequalified borrowers were transposed. (1/5/15)