Three Reasons
Once upon a time — like in 2009, in the aftermath of The 2008 Crash — jumbo or “non-conforming” loans were significantly more expensive than conforming loans (under $417k in most parts of the country).
When conforming loans were going for 5.5%, jumbo’s were fetching 6.25% or 6.5% — assuming you could find a lender making them.
Today, that relationship has reversed.
Dramatically.
So, whereas the rate for a conforming, 30 year mortgage is now around 4.25% for well-qualified Buyers, the corresponding rate on jumbo’s can be a full 50 basis points lower, or 3.75%.
Stricter Underwriting Standards
What accounts for that sea change?
Three things, according to lenders I work with:
One. Stricter underwriting standards.
Lenders ask for more qualifying info (income, assets, etc.) from jumbo borrowers.
Two. Bigger down payments.
Jumbo borrowers frequently put down 20% or more, which decreases the loan-to-value ratio, making the loans safer for lenders.
Three. Banks are holding more of the jumbo loans for their own portfolios, vs. re-selling (securitizing) them.
When banks can essentially borrow money for free, courtesy of the Federal Reserve, earning a relatively safe 3.75% is pretty attractive.
