Adapted from Realtor.com
According to the trade publication Inside Mortgage Finance, 20.3% of all mortgages originated during the 1st quarter of 2016 were jumbo loans.
Only a small percentage of jumbo loans are sold to investors. Because these loans are held in a lender’s portfolio and aren’t subject to the guidelines of investors purchasing them—as opposed to conforming loans, which must comply with hard-and-fast parameters established by Fannie Mae and Freddie Mac—terms and underwriting standards vary widely.
“Borrowers may find more flexibility with lenders that keep mortgages on their own books,” says David Reiss, a Brooklyn Law School professor who specializes in real estate. “These lenders can usually take a more individualized approach to underwriting than a lender that sells its mortgages.”
Unlike most conforming loans, jumbo-loan applications aren’t processed by an automated underwriting system. They are instead processed individually by a real person, which allows the lender to make exceptions on occasion while still complying with fair lending standards.
It is usually a benefit to a borrower to deal with a bank where you already have a relationship—or to which you would consider moving your business. How much value you present to the lending institution will dictate how much leverage you have as a borrower.
Possible concessions include an interest-rate discount or a reduction in closing costs or escrows. Borrowers shouldn’t expect much on the interest rate because lenders still need to make a return on their investment, and interest rates are already low.
Here are a few things to consider when negotiating a jumbo loan:
- Prepare before applying. Jumbo lenders are focusing on borrowers with good credit and resources. Before applying, borrowers should clean up their credit report and keep debt in check. Lenders look at total debt-to-income ratio and overall credit to determine how strong a buyer is; the stronger the buyer, the more the negotiating power he has.
- Create a relationship. If you’re a substantial borrower with a substantial relationship with a bank, the guidelines might get a bit more flexible.
- Don’t hesitate to negotiate. Negotiation for better terms can save you thousands over the life of the loan.
For expert advice about jumbo loans, feel free to contact Don Kelly at Affiliated Bank. Don is the Brandee Kelley Group’s preferred lender, and once you meet Don, you’ll know why! He is committed to delivering top-notch service to his clients.