Home values are rising at their fastest rate since before the housing bubble. Homeowners throughout the country are listing their homes and getting offers within weeks rather than months. A recent couple in Maryland was on Fox after receiving five offers above asking price the day after their home was listed. Fueled by a rise in demand, and home purchases by institutional investors, home prices went up by 10.6% in March – the largest increase since 2006.
As home values rise the need for home loans over the conventional loan limit, $417,500, will also increase. Buyers in places like California, New York, and Washington DC are already used to paying more for their home and the rest of the country may soon join them. As a home buyer this may seem daunting as a higher purchase price typically requires a greater down payment. Fortunately there are jumbo loans and super jumbo loan programs available to qualified buyers.
A jumbo mortgage loan is typically $418,000 – $999,000 and a super jumbo mortgage loan is $1 million to $25 million.
Typical Jumbo Loan Qualifications
• Down payment of 20% of the purchase price.
• Six to twelve months of cash reserves to cover the mortgage payment.
• Good credit rating.
• Established employment history.
As the loan amount increases above $2 million the required down payment and cash reserves also increase. Banks want to ensure that the borrower will be able to cover the mortgage payment in the event that their financial situation changes. Since most luxury homes are customized it can be more challenging to sell them in the event of a foreclosure.
Location is also important in determining whether or not you will qualify for a jumbo or super jumbo loan. Homes in major metropolitan areas, or states with higher home values such as California, have an easier time qualifying. The lender knows that it will be easier to sell the home in an emergency because the market will support it. Luxury homes in rural areas are much more difficult to sell because your home, while stunning, may be the only home for miles in the million dollar price range. With few homes to compare it too, there may be no market for a luxury home in a down of 10,000 people.
Relationships are also key in obtaining a super jumbo mortgage loan. Working with an experienced mortgage banker is essential. By leveraging their existing lender relationships they are able to offer larger, more high risk, loans to borrowers. With a track record of closing solid loans it is easier for the bank to take an additional risk.
Mortgage interest rates are still low and slight changes in rates can mean hundreds of dollars in monthly payment. A $2 million dollar home loan at a 4% interest rate has a monthly payment of $9,548. That same loan at 5% interest has a payment of $10,736, a $1,200 monthly difference. If you are considering purchasing your dream home do so now before interest rates and home values continue to climb.
