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It's A Good Time To Be A Jumbo Mortgage Borrower

Jumbo mortgage lending picked up appreciably in 2012 and is expected to grow even more in 2013, offering better deals for borrowers buying high-end houses. Jumbo lending was up 19.4 percent in 2012, increasing by nearly 6 percent in the fourth quarter alone, according to Inside Mortgage Finance.

Simply put, jumbo mortgages are home loans that exceed Fannie Mae and Freddie Mac's conforming loan limit. In most U.S. locations, that means a loan amount higher than $417,000, or $625,500 in certain high-cost housing markets.

"I don't think that a consumer looking for a jumbo mortgage today would have much trouble finding financing whereas three or five years ago it could have been a real challenge," says Bill Banfield, director of capital markets with Detroit-based Quicken Loans. "I think you are going to see the full gamut of lenders, everybody from Quicken Loans to brokers to large banks competing in the activity, which again starts to create momentum and helps drive down rates."

A more favorable market

After the financial crisis set in, jumbo loans were basically only available from lenders who were willing to make the loans and keep them on their books, forcing borrowers to pay higher costs to compensate the lenders for the risk of holding onto the loans.

Now, with securitization activity ramping up (securitization is when a lender groups a pool of mortgages together into mortgage-backed securities and sells them off to investors), lenders are less worried about risk and more interested in making loans.

With an increase in activity comes lower interest rates. Keith Gumbinger, vice president of HSH.com, says the rate on a 30-year fixed-rate jumbo mortgage is near record lows, averaging 4.07 percent for the week ending March 15. Currently, the spread between jumbo and conforming rates "is quite close to normal," Gumbinger said in an email, as conforming rates have risen more than jumbo rates as of late.

Qualifying for a jumbo mortgage

Despite recent improvements in the jumbo market, lenders still have strict lending requirements. Julian Hebron, branch manager of RPM Mortgage, a private mortgage bank in San Francisco, says RPM Mortgage requires a credit score of 700 or higher, a down payment of at least 20 percent (depending on your loan size), and financial reserves to cover anywhere from nine to 18 monthly payments. RPM Mortgage credits 401(k) and IRA values towards meeting these reserve requirements, which means you don't have to meet the entire reserve requirements in cash, which is particularly helpful in high-cost markets.

Hebron says you also may need to have as many as three open credit lines with 24 months of credit history on each in order to verify your creditworthiness. Certain non-traditional forms of credit such as rental history or cell phone bills could count for this, according to Hebron, but not utility bills.

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