As part of the 2009 stimulus package, Congress increased the conforming mortgage loan limit from $417,000 to as high as $729,750 in certain high-cost areas around the county.
To be classified as "high-cost", an area's median home price must exceed $365,000. 324 areas qualify nationwide and, in each of those locales, the conforming loan limit was modified to 115% of the respective region's median home price.
Neither Chicago nor Cincinnati made the list, however. This is because lower-cost homes co-habitate with higher-cost ones, acting as an anchor on median prices across the region.
As a result, the following areas are relegated to the $417,000 conforming loan limit despite that the "average" home typically sells for much more than that.
- Lake County, Illinois
- Indian Hill, Cincinnati, Ohio
- Lincoln Park, Chicago, Illinois
- Hyde Park, Cincinnati, Ohio
- Streeterville, Chicago, Illinois
For residents of the places like these, a $417,000 mortgage just won't get the job done. Homes routinely sell for $1 million or more and few homeowners have a downpayment to make up the difference. Because Fannie Mae's loan limits are too small, homeowners are forced to find other options.
Enter the Jumbo Mortgage. And it's ugly.
Loans too big for Fannie Mae are commonly called "jumbo mortgages" or "super-jumbo mortgages", depending on their size. From 2002-2007, jumbo mortgages were easy to get because investment banks, hedge funds and other financial firms were competing to invest in them. This held rates low and guidelines loose. Qualifying for a jumbo mortgage was as easy.
Today, however, the story's a bit different.
If you've been shopping for jumbo mortgages at your bank, you already know -- jumbo mortgages are downright expensive right now. Rates are high, fees are high, and banks are non-apologetic their product mix.
Thankfully, there's another way to get it done.
See, the terms "jumbo" and "super jumbo" -- these are words for a Fannie Mae World, as if Fannie Mae was the only game in town. But, it's not. On the contrary, if you can find your way off the beaten mortgage path, you'll uncover a whole world of lenders that don't care about Fannie Mae and its maximum loan sizes.
We call them "niche lenders" and when the Big Banks of Wall Street won't finance your home, look to the local banks of Main Street instead.
Different from Big Banks, niche mortgage lenders often keep their mortgage loans on their books. There's no "end investor", per se, and that gives banks the freedom to underwrite to their own set of rules -- and they do.
Main Street mortgage lenders do things that Fannie Mae or the FHA wouldn't touch:
- PMI not required above 80% loan-to-value
- Cash due at closing can be a 100% gift
- Closing within a LLC or other entity is permitted
Furthermore, the rates are amazing.
As an example, I'm currently quoting a $1,500,000, 7-year ARM at 4.875 percent (APR 4.930). I tried to shop the same scenario with a Big Bank in Cincinnati for comparison's sake. The bank wouldn't even consider the loan for me, let alone price it.
There are other examples, too. Niche lenders do things like:
- $900,000 cash out mortgage with 10 percent equity, primary residence
- $2.0 million mortgage at 60 percent LTV, primary residence
- $3.0 million mortgage at 50 percent LTV, vacation home
Finding a Main Street-type lender isn't always easy, but it's worth the extra effort. Mortgage rates tend to be lower, downpayment requirements tend to be smaller, and the underwriting process is usually smoother. As a loan officer, I work with a lot of such banks.
If you're having trouble finding a bank to service your "large loan" or just want a second opinion, send me an email with your scenario and I'll point you in the right direction. If I can't help you directly, I may know somebody who can.
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