Jumbo Mortgage Rates
Hello potential clients of Texas. I wanted to write a post about Jumbo mortgage rates, why I think you should go with my company and how brokers make their money. First of all Jumbo mortgages are a completely different type of mortgage than a conforming mortgage. They are non conforming mortgage meaning they exceed 417K. This poses a problem with a majority of banks now because they are becoming increasingly difficult to sell on the secondary market. Because of this, rates are higher and the costs are higher with your general bank. This is all fine and dandy because there are still banks out there who desire these particular loans. For example I work with over 40 banks and 6 of them fit this mold. Last year the number would have been closer to 30. The banks with the most aggressive Jumbo products have portfolio lending which means they actually hold on to the loan and do not sell the financial instrument on the secondary market. The trick for the mortgage planner is to know which bank to work with in terms of the loan amount, loan to value and credit score. This seems easy, but I can assure from researching these loans for years is not. The key is not only to partner up with someone who has access to many lenders but knows exactly which lender is good at what and keeps track of which lender might be trying to buy the market that week or that month. Jumbo mortgage applicants generally have a pretty keen financial eye, with the exception of some athletes and entertainers. Thus as a consumer its your job to find the perfect deal which will consist of lowest rate and lowest closing costs. Working with someone who does their research is also a big plus. Your ideal loan officer will be on 100% split and have low overhead. They can charge less and still make the same money. Do you think two mortgage guys who have local Dallas radio shows on AM have low overhead? Now here comes the fun part how brokers make their money. Brokers make their money one of two ways, on the front or on the back. On the front brokers make money in origination. They may also charger a broker fee, but this most of the time is a legitimate fee that goes to the actual broker of the company. On the back of the loan the broker makes (Yield Spread Premium). To simplify this, it means the mortgage planner raises the rate above par in order to make more $. Par rate reflects the lowest amount of YSP before there is an actual cost to the broker for rate. Now obviously the process takes around a month from start to finish and no one expects some to work for free so money has to be made somewhere. When a clients sees a Good Faith Estimate with no points they assume they are getting a great deal, which they may. In reality the mortgage planner is making all their money by charging you a higher rate. Truth be told, with a Jumbo mortgage an eighth or quarter of point has a great effect on your monthly payments due to the sheer size of the amount financed. Here is an example of one the best Jumbo mortgage lenders rates. US Bank with a 15% down payment has some of the best rates in our country. They do not charge for interest only (.25), waiving escrows (.25) and big one, they do not charge mortgage insurance. They are one of two banks that has such an aggressive Jumbo program. I would tell you about the other but I cant give away all my secrets. Here are US Banks par rates as of today. This is based on a credit score of 720 and loan amount 750K or less.
3/1 ARM 5.7%
5/1 ARM 6.5%
15 Year Fixed 6.65%
20 Year Fixed 6.7%
30 Year Fixed 7.15%
On a deal like this 1 point would be charged. Keep in mind if you factor in the savings of the escrow waiver and interest only if you choose these options then you are getting a par rate with half a point on the front. Also you have no mortgage insurance, which will save you at least a couple of hundred dollars a month alone. Banks offer what I would say are pretty good deal up to 3 million dollars. Be prepared for at least a 10% down payment. Your credit score is very important. There are big hits for scores under 720. If you have to nice home and your credit score is a 650 be prepared for higher rate and larger down payment. As always if you have any questions about guidelines or rates, please send me an email josh@jkohlmortgages.com.
Josh Kohl