Lower Down-Payment Requirements for Jumbo Loans
January 2, 2014
Private jumbo-mortgage originations are on pace to reach the highest level since 2007, as lenders are offering low down-payment requirements to lure more borrowers, The Wall Street Journal reports.
Many small lenders, such as community banks and credit unions, say they are willing to cover jumbo loans with 5 percent to 10 percent down payments now, according to the Journal.
As home values rise, banks are experimenting with loosening up lending standards by targeting private jumbo loans as a way to increase their business share. In most parts of the country, jumbo loans are those that are $417,000 and higher; in some of the most expensive markets, jumbo loans are $625,500 or more.
But with low down-payment requirements for jumbo loans entering the arena, that means a comeback for the private mortgage insurance industry. The insurance, which protects lenders in case a borrower defaults, is charged to borrowers who usually make less than a 20 percent down payment. Private mortgage insurers are reportedly lowering their costs and increasing the size of mortgages they’ll cover to accommodate jumbo borrowers.
Mortgage Guaranty Insurance Corp. raised the maximum mortgage it will insure from $750,000 to $850,000 last month; Genworth Mortgage Insurance raised its maximum level from $625,500 to $850,000; United Guaranty recently started offering a limited program for loans up to $1 million.
The move by private lenders to increase low-down-payment jumbo loans comes as the Federal Housing Administration started reducing the amount of high-cost mortgages that it will insure in about 650 counties. As of Jan. 1, FHA loans in high-cost areas have been capped at $625,500, reduced from $729,750.
Source: “A Jumbo Mortgage Without a Jumbo Down Payment,” The Wall Street Journal (Dec. 31, 2013)
Updated: September 20, 2019