Prospective home buyers who want to buy luxury homes may now have to meet tougher requirements in order to qualify for a jumbo loan, also known as a jumbo mortgage.
A jumbo loan involves financing beyond the limits set by the Federal Housing Finance Agency. This type of mortgage cannot be guaranteed, purchased or securitized by Fannie Mae or Freddie Mac. Since the pandemic began, lenders have become stricter about approving them. That means buyers trying to qualify for a jumbo loan might have to show a higher credit score than they would have in the past, pay a bigger down payment or have more money in the bank. These loans already required buyers to provide more detailed information to prove their ability to pay them back, including tax returns and bank statements.
In most states, the federal cap for mortgages backed by Fannie Mae and Freddie Mac is $510,400 this year. The cap in Alaska, Hawaii, Guam and the U.S. Virgin Islands is a bit higher: $765,600.
Of course, in many big cities, home prices significantly exceed those amounts.
In the past, banks would purchase the loans originated by jumbo mortgage processors. But with higher unemployment rates, there is a lot less of that happening, which means a lender would have to keep the mortgage and withstand the risk of a default.
If you do seek out a jumbo loan and find options, pay close attention to the differences between the terms of the loan offered by different lenders. Sometimes there are differences of a quarter or a half of a percentage point.
According to CNBC, Wells Fargo is allowing people who already have assets held with them, who currently have a mortgage with them or have a home equity line of credit with them to pursue a jumbo mortgage refinancing. For anyone who is not currently a customer who is seeking to refinance a jumbo loan, as of July 2020 Wells Fargo will require you to transfer at least $1 million in assets to the bank. This rule applies only to the refinancing of jumbo loans, not to obtaining a new one.
For now, if you want to refinance a jumbo loan or to obtain one to make a home purchase, you might be able to get help from a mortgage broker.