We all know that the Bay Area has some of the highest home prices in the nation. But did you also know that the so-called “jumbo loans” needed to buy many of these homes come with interest rates that are less than that of smaller “conforming” loans?
It’s true. All summer long, in fact, interest rates on jumbo loans have been lower than what average borrowers pay.
And in some cases, buyers who take out jumbo loans don’t even have to worry about a large down payment or mortgage insurance, according to a recent CNNMoney report.
For example, the average rate on jumbo loans last week was 4.30 percent, compared with 4.39 percent for a 30-year, fixed-rate conventional mortgage, the Mortgage Bankers Association reported.
In some cases, lenders also have reduced their down payment requirements as well, requiring as little as 10 percent, which is about half the normal rate. Some lenders are waiving the private mortgage insurance requirement, too.
Conforming loans — those guaranteed by Fannie Mae and Freddie Mac — are currently capped at $417,000 across much of the country, although in costlier regions such as the Bay Area the maximum loan amount limits are higher.
Fannie Mae and Freddie Mac guarantee mortgages up to $625,000 in San Francisco, Alameda, Contra Costa, Marin, and San Mateo counties and up to $592,250 in Napa County and $520,950 in Sonoma County. Federal Housing Administration loans have higher limits: $729,750 in San Francisco, Alameda, Contra Costa, Marin, San Mateo, and Napa counties and $662,500 in Sonoma County.
In the Tahoe/Truckee region, all conforming loans are capped at $477,250 in Nevada County and $474,950 in Placer County.
Banks are on the hunt for jumbo customers in order to win them over as clients for other banking services, such as retirement planning, Malcolm Hollensteiner, head of retail lending for TD Bank, told CNNMoney. Jumbo borrowers tend to have better track records in repaying their loans and have lower default rates, so more banks are willing to take the gamble on them.
CNNMoney also reported that many banks have lowered their credit standards for jumbo loans in 2014, Many jumbo borrowers used to need at least a 700 credit score to qualify, but some lenders reportedly are considering applicants with credit scores of 650.
If you are in the market for a mortgage, take a look at these helpful mortgage tips, posted on Pacific Union’s blog earlier this year.
And if you plan to buy a home in the Bay Area or the Tahoe/Truckee region, Pacific Union’s mortgage partner, Mortgage Services Professionals, can offer loan advice and consultation to help make your purchase a success.
(Image: Flickr/401(K) 2012)