Save Money With Smaller Jumbos

Home buyers trying to purchase a pricey property will probably need a jumbo loan—a mortgage that exceeds government limits. But there are different types of jumbos, and some are a little easier and cheaper to get than others.

But first, a handy breakdown for those befuddled by the confounding terminology of the mortgage business:

Conforming mortgages are capped at $417,000 and backed by government agencies, such as Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Veterans Administration (VA).

Conforming jumbo mortgages exceed $417,000 and can go up to $625,500—the exact limit depends on housing costs in your area. The loans are sometimes called “super conforming loans” or “agency jumbos” because they’re still guaranteed by government agencies.

Jumbo mortgages exceed government limits and, thus, are typically held by the lender as part of its portfolio or bundled and sold to investors as mortgage-backed securities.

Borrowers typically pay lower interest rates on conforming loans than on nonconforming jumbo mortgages. (Rates and qualification requirements vary by lender.)

Escalating home-sales prices are pushing more buyers into both conforming and nonconforming jumbos, says Tim Owens, who heads Bank of America’s retail sales group.

Jumbo mortgage volume totaled about $93 billion in the second quarter of 2015, up 33% over the first quarter, according to Inside Mortgage Finance, an industry publication.

The volume of government-backed conforming jumbos also saw brisk growth, increasing 32% between the first and second quarters to $34.2 billion—more than double since a year ago, Inside Mortgage Finance data show.

“The agency jumbo market is firing on all cylinders—purchase, refinance and every loan program,” says Guy Cecala, publisher of Inside Mortgage Finance. The biggest jump was in FHA jumbo mortgages, with volume up 136% between the first and second quarters, he adds.

The spike in FHA mortgages, in particular, comes after the agency on Jan. 26 reduced its required mortgage-insurance premiums, Mr. Cecala says. Premiums dropped from 1.35% to 0.85% of the balance on fixed-rate FHA loans with terms above 15 years.

More lenient credit requirements spur borrowers to prefer agency jumbo mortgages over nonconforming loans, says Mathew Carson, a broker with San Francisco-based First Capital Group. He is working with a professional couple borrowing $511,000 for a home in Petaluma, Calif., where the government’s loan limit is $520,950. The couple, both first-time home buyers, could opt for a conforming or a nonconforming jumbo loan but chose a conforming jumbo backed by the FHA. Why? The FHA mortgage required a 3.5% down payment, whereas lenders for a nonconforming loan could require the standard 20% down payment.

see more: http://www.wsj.com/articles/save-money-with-smaller-jumbos-1438786011