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Jumbo Home Loan Underwriting Standards Loosen -- for the 41 Percenters

[Nov 11, 2009.]


For a long time now, getting a jumbo home loan at a fantastic interest rate has been extremely difficult. Headlines of sub-5 percent mortgage rates have been a tease for most jumbo home loan borrowers, who habitually pay one or two more percent on their mortgages than "conforming" borrowers.

A jumbo loan meaning a home loan that will not be purchased by Fannie Mae or Freddie Mac in the secondary market--meaning, in short, that a jumbo loan entails more risk for the originating lender.

Now, jumbo home loan underwriting standards are loosening slightly, according to many high-end real estate agents. Jumbo mortgage rates have dipped a bit, certain banks are less scared than they've been.

Nevertheless, there is one requirement, in order to avail oneself of that loosening:

A debt-to-income ratio of 41 percent.

Refinancing a Jumbo Mortgage With a High Debt-to-Income Ratio Is Nearly Impossible

Many borrowers who have multiple car loans, home equity loans, and second home mortgages will not be able to refinance the jumbo home loans on their personal homes, unless those other assets are significantly liquidated.

And as anyone who's ever tried it knows, assets are tough to liquidate when lots of other people need to liquidate assets, too.

Making the mortgage payment, in addition to all the other payments (stupid timeshare!), becomes impossible when unemployment crops up.

Debt-to-Income Ratio a Powerful Force in Today's Jumbo Home Loan Marketplace

Banks and even alternative lenders, such as providers of bad credit mortgages, have simplified these kinds of lending decisions through the use of a number: 41 percent.

Does this borrower, asking for this refinance, spend 41 percent or more of their monthly gross income on debt payments, including mortgage, home equity loans, car payments, alimony, etc.?

If the borrower does not fit into that box, that jumbo loan is going to be a long haul.

Price Cuts, Foreclosures on High-Priced Homes

The cold realities of jumbo home loan qualifying guidelines, especially with respect to the "back end ratio," or debt-to-income ratio, has caused massive changes in the sale of high-priced homes.

High-priced home prices are being cut, and quick.

And more high-priced homes are going into foreclosure more frequently.

The lesson of all this, for the individual considering refinancing a jumbo home loan anytime in the near future, may be that reduction of debt is a prerequisite for taking advantage of better jumbo home loan rates and terms.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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