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Old 01-05-2010, 09:21 PM
 
19 posts, read 64,115 times
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I apologize for asking what should be a relatively easy question but I am confused about jumbo loans in today's climate --

My wife and I have a combined income of 450k, and a downpayment saved up of 250k (recently completed post-graduate training). I was not aware of how strict jumbo loan requirements are now, but as I see it, the people that offer jumbo loans want significant liquidity in addition to the downpayment. One rate quoted was 20% down and then 20% addition in liquidity (non-retirement). I did not know of this liquidity requirement until I started shopping.

The basic question is - how is anyone (new buyers) qualifying for these loans? For a million dollar house, you would need 400,000 on hand - for 1.5M you need 600,000. Is this a temporary blip? Or am I just not shopping enough?
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Old 01-06-2010, 06:39 AM
 
28,449 posts, read 72,710,390 times
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Jumbos are typically for move up buyers -- the down payment is generally coming from the equity in the sale of the existing home. With the fall in values of existing homes lenders want to be sure the jumbo buyer has assets beyond the real estate side. I have seen this "requirement" crop up a bit in the last year. The lenders can basically ask for whatever they want, as the secondary market for jumbos is dead.

For high net worth folks this is not too big a stumbling block, and the "private banking" type lenders will consider amounts below that 20% level if the borrower moves investment accounts under the bank's umbrella. Nice way to build scale / put the squeeze on competitors with the turmoil caused by acquisition of Merrill Lynch...

If you do not have any way to get into a "relationship banking" sort of situation it may be smart to shop at a more affordable price point.

The other thing that might be an option is to approach your employer -- it is not completely unheard of for firms that have highly compensated individuals setup with a special lender / programs that the employer will sponsor.
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Old 01-06-2010, 04:21 PM
 
19 posts, read 64,115 times
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Quote:
For high net worth folks this is not too big a stumbling block, and the "private banking" type lenders will consider amounts below that 20% level if the borrower moves investment accounts under the bank's umbrella. Nice way to build scale / put the squeeze on competitors with the turmoil caused by acquisition of Merrill Lynch...

I did get this push from JP Morgan to be part of their "private wealth" category, but they were a little hesitant about what would happen after I took all the money away from the downpayment. But what you are suggesting is that these situations might facilitate jumbo loans with < 20% downpayment or is it just less post-downpayment liquidity?

What is fasciniating to me is that the only people that can purchase these million dollar homes are people with significant equity in their existing homes - there just don't seem to be enough people to justify the # of million dollar homes on the market. I can definitely see how this market is the next to fall!
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Old 01-06-2010, 05:08 PM
 
28,449 posts, read 72,710,390 times
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The 20% down is standard. Any jumbo lender that does not require that is just nutty, as even with PMI (which is not a slam dunk for jumbos...) the potential for large losses remains huge.

The "private wealth management" pitch is a way to avoid the "liquidity requirement" and frankly it might make sense for a lot of people -- the bank is sorta counting on being able to advise you for your own assets to grow and of course for their business to remain strong. It is not like they want to put you into risky investments to leave you financial ruin to foreclose on your house! They just don't want you to have a mortgage from them, a brokerage account at BofA and your checking accounts with Wells Fargo... A fixed rate is a fixed rate loan, once you close the liquidity requirement won't cause the rate the rise, and I doubt they'd make the loan 'callable' if you moved out of their "private wealth" group.

The details on just how many people are capable of affording million dollar+ homes is something that I find fascinating. If you dig into census tract data (like the folks from Million Next Door did) you find there are some impressive pockets of wealth all over America. Lots of people are very successful, and often they do tend to live near each other, but rarely do they spend quite as much as they could. The things they look for in a place to live generally include stability, privacy and some anonymity -- I don't think that there is any bubbling collapse of prices in the upper bracket homes beyond what has already hit. You may be surprised to find just how small the average mortgage is for the typical buyer of a million dollar home in most parts of the country -- equity could decline by a huge amount before they'd really be forced to sell.

If you don't feel comfortable shopping in the upper brackets you are not alone, as sales activity is way off where it was pre-bubble, and I think the reflects the traditional pretty slow pace of of sales in the upper brackets that really was a hallmark of most areas with even lots of estate sized properties, the sort time-on-market was a weird thing that really started when interest rates got crazy low in the period that started around 2001 ( especially for ARMS) and stayed there for an extended period (still today 30 year fixed rates are silly low in historical terms).

There are some really terrific
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Old 01-08-2010, 08:10 PM
 
Location: Hampton Cove, AL
692 posts, read 1,330,687 times
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Quote:
Originally Posted by rajman2009 View Post
What is fasciniating to me is that the only people that can purchase these million dollar homes are people with significant equity in their existing homes - there just don't seem to be enough people to justify the # of million dollar homes on the market. I can definitely see how this market is the next to fall!
Then why in the world would you want to buy one?
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Old 01-09-2010, 07:26 AM
 
3,576 posts, read 6,154,464 times
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Quote:
Originally Posted by rajman2009 View Post
I apologize for asking what should be a relatively easy question but I am confused about jumbo loans in today's climate --

My wife and I have a combined income of 450k, and a downpayment saved up of 250k (recently completed post-graduate training). I was not aware of how strict jumbo loan requirements are now, but as I see it, the people that offer jumbo loans want significant liquidity in addition to the downpayment. One rate quoted was 20% down and then 20% addition in liquidity (non-retirement). I did not know of this liquidity requirement until I started shopping.

The basic question is - how is anyone (new buyers) qualifying for these loans? For a million dollar house, you would need 400,000 on hand - for 1.5M you need 600,000. Is this a temporary blip? Or am I just not shopping enough?
Welcome to my boat and my brother and sister's situations. First of all, all of us in the income bracket at considered, "HENRY's" high earners not yet rich.

Hence your Jumbo Loan dilemenia. As other posters have stated the secondary market for jumbo loans will carry a premium in terms of the much higher interest rate you will face.

Lenders want as little as 20 percent down to as much as 50 percent down depending on the size of the jumbo loan PLUS you still are looking a much higher intersest rate as opposed to today's current low 5% interest rate for conforming mortgages.

Where do you live? If you live in a high cost area like Washington DC, NY, SF, LA you need to target 729K because that's what Fannie/Freddit sets as their "conforming rate". In lower costs areas like most of the midwest, most of Florida the conforming rate is 417K.

My sister lives in the Wash DC area and homes below 800-900K are still selling well (relatively). Why? Because people only need to come up with around a 20-25% downpayment. Look at homes in the 1 plus million range and people are starting to look at a 30% downpayment. That's over $300K cash for downpayment. Home in Florida that are over 600K (with the 417K mortgage conforming limit) are still just sitting because no one wants to put down 30% just to drive down the rate to a conforming.

My brother out in LA was looking at the 1.5-2 million dollar range for his home. He and his wife earn around 800K a year they can easily afford the mortgage. They were will to put down 500K downpayment but they were looking at interest rates at around 6.75% and that was for a 7 year ARM (this was 4-5 months ago so interest rates might have changed).

Now they've gotten wise, like a lot of people and started targeting the high 900K-low 1 million range so they wlll put enough cash down to get to the 729K conforming mortgage and keep more cash in the bank.

In addition most lenders still want to see at least 6 months in cash/stock/liquid reserves (outside of your downpayment) and they exclude retirement assets because retirement assets are usually protected in bankrupcty proceedings.

It's scary and will continue to be scary for the jumbo loan market. I know you've worked hard and want the finer things in life. But in today's housing market, you need to stay away from the jumbo loan terrority unless the home you are buying is such a great deal.
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Old 01-09-2010, 01:41 PM
 
19 posts, read 64,115 times
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aneftp - That is very helpful - good to know I am both a HENRY and a DINK. So many titles, so little house. Searching on HENRY pulls up a lot of interesting articles, thanks.

We are looking in the city of Chicago so our conforming is at the 419k mark.
I think this has been eye-opening for me, because as higher-earners with stable jobs (physicians) with minimal educational loan debt, we would have coasted to a very good loan a few years ago. But now, I think we need to ride the market for a bit and maybe rent a house instead unless I can find something in the 700-900k range that fits my needs.

As for why we would want to buy a house in that market if I thought the market was coming down (tammie2) - I guess I was more intrigued by the idea that there are deep discounts right now reflecting people's inability to pay for their second home/mortgage and that I could take advantage of it. But apparently I can't either, so I suspect these hundreds of million dollar homes in Chicago will have to find a different owner for now.
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Old 01-09-2010, 01:56 PM
 
Location: Hampton Cove, AL
692 posts, read 1,330,687 times
Reputation: 244
Quote:
Originally Posted by rajman2009 View Post
As for why we would want to buy a house in that market if I thought the market was coming down (tammie2) - I guess I was more intrigued by the idea that there are deep discounts right now reflecting people's inability to pay for their second home/mortgage and that I could take advantage of it. But apparently I can't either, so I suspect these hundreds of million dollar homes in Chicago will have to find a different owner for now.
If my assumptions are correct(and so far they have been), you will be able to pick up one of those $1M homes even cheaper in the next couple of years. I have family in Chicago, I have seen that market first hand. It is not pretty. My family has only lost "paper equity" which is good for them, however they have seen the values of their homes drop to half of what they were in '07 and '08. I would hate to have been one of the people that lost real equity. Very scary real estate picture currently in Chicago.

Best of luck to you and congrats on your graduation!!
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Old 02-03-2010, 05:32 PM
 
Location: Lending in all 50 states
189 posts, read 733,072 times
Reputation: 109
Quote:
Originally Posted by rajman2009 View Post
aneftp - That is very helpful - good to know I am both a HENRY and a DINK. So many titles, so little house. Searching on HENRY pulls up a lot of interesting articles, thanks.

We are looking in the city of Chicago so our conforming is at the 419k mark.
I think this has been eye-opening for me, because as higher-earners with stable jobs (physicians) with minimal educational loan debt, we would have coasted to a very good loan a few years ago. But now, I think we need to ride the market for a bit and maybe rent a house instead unless I can find something in the 700-900k range that fits my needs.

As for why we would want to buy a house in that market if I thought the market was coming down (tammie2) - I guess I was more intrigued by the idea that there are deep discounts right now reflecting people's inability to pay for their second home/mortgage and that I could take advantage of it. But apparently I can't either, so I suspect these hundreds of million dollar homes in Chicago will have to find a different owner for now.
I found a lender that will do a jumbo up to $625,500 ( puts the purchase at $695,000) with only 10% down but you need to 12 moths PITI after closing
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Old 02-04-2010, 06:07 AM
 
Location: Wake Forest, NC
835 posts, read 3,672,818 times
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There are well known jumbo lenders that do not require asset verification. You do need 25% down and above average credit but thats it.
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