Wednesday, September 30, 2009

Mortgage Loan Pre Qualify vs. Mortgage Loan Pre Approval: Part 1 Mortgage Loan Pre Qualify

Being pre qualified for a home mortgage (or getting a pre qual as most mortgage professionals like to call it) really isn't much of a process or carries the weight most mortgage borrowers seem to think. Pre qualify is basically nothing more than an informal review of the borrowers' financial condition. In a face to face interview a loan officer will ask some basic questions regarding a borrower's financial situation. Things like place of employment, income, length of employment etc. are discussed. Usually there is no written verification or documentation of the information that is provided. Based on the information the borrower supplies, the lender's employee provides an estimate of what he or she thinks the borrower will qualify for. Should the estimate be reduced to writing, then a letter of pre qualification or a pre qual letter is issued. The entire mortgage loan prequalification process may be over in as little as five minutes and often times handled over the phone.

As the above description illustrated there really isn't a whole lot of information or documentation to back up the home mortgage lenders good faith estimate and absolutely nothing binding about the opinion even if it's been reduced to writing. But it does show realtors and home sellers that the prospective home purchaser is at least a little further along in the home buying process, than the typical tire kicking no better way to spend a Sunday than waste people's time, not really serious home buyer.

But how much further along in the process are home buyers that get prequalified. Let's say they go out and find the perfect home and it priced within the confines that the loan officer said was acceptable. When an offer is formally submitted on the dream home, it's discovered that the financial information that was used to prequalify the home shopper needs to be verified by other means. And that it isn't as simple a matter as previously thought. Or that the borrower really hasn't been at the job two years. It's more like eighteen months. It's not difficult to see the fallacy of thinking that a home loan prequel carries much weight.

Actually, they really aren't worth the paper they usually aren't written on. Most real estate agents realize this fact and advise serious home shoppers to take the time and get pre approved for a mortgage loan. With a pre qualification a lender really doesn't have a commitment to lend a borrower anything. Serious home buyers need to show their borrowing strength and their lender has a commitment to lend them what is needed. This is something that a home mortgage pre qualification was never meant to do.

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Jumbo Mortgage to Jumbo Home Mortgage|Name Change

As you may have noticed I have been on some what of a sabbatical. This has mainly been due to personal issues which I won't bore you with. But I am back and am planing to devote a fair amount time to this little blog here. It is with a new beginning in mind that I have decided to change the name of this venue from Jumbo Mortgage to Jumbo Home Mortgage.

So why the change? You may ask.

Well it really isn't much of a change. I am simply adding the word Home to the title Jumbo Mortgage. The word home is already in the blogs url and the entire focus of the blog has always been on the residential mortgage industry. As a matter of fact it would probably be a misnomer to even uses the term jumbo mortgage in a commercial or industrial lending context.

Besides this is my blog and can do what I want. I you want to start a blog styled Jumbo Mortgage go right ahead. From this day forward I am changing the name to Jumbo Home Mortgage

Sunday, June 14, 2009

Should I Refinance ?

There are a lot of reasons to refinance your jumbo mortgage. While there may be some circumstances where refinancing would not be a wise decision, there are a many benefits which can be gained from refinancing out of an unfavorable situation. Some the benefits could include lowering your monthly payment, consolidating your debt or to utilizing the existing equity in their home. Homeowners who are thinking about refinancing ought to consider each of these options as it relates to their current financial situation to determine whether or not refinancing their jumbo mortgage makes sense.

Lower Your Monthly Payments

For almost every homeowner the prospect of a lower monthly payment is a very strong reason to refinance. Many homeowners find themselves living paycheck to paycheck and the thought of finding an opportunity to bolster their savings and have some investment capital could be a dream come true. Most homeowners that negotiate lower interest rates when they re-finance their jumbo loan will most likely see a lower monthly mortgage payments resulting from the refinance.

Every month homeowners make a mortgage payment. These payments usually are used to pay the interest and a portion of the principle on the mortgage. Homeowners who can refinance their jumbo loan to a lower interest rate can see a decrease in the total they're paying in both interest and principle. This is the result of a better interest rate in addition to a smaller balance. When a jumbo mortgage is re-financed, a second loan is secured to pay off the first jumbo. If the existing jumbo was already a couple of years old, it's probably safe to say the homeowner built up some equity in addition to paying off some of the previous balance. This allows the homeowner to take out a smaller loan when they re-finance their jumbo because they're paying back a smaller debt than when they purchased the property.

Consolidating Your Debt

Some homeowners are looking to refinancing their jumbo mortgage in order to consolidate high interest debt. This is particularly true for homeowners who have credit card debts. Debt consolidation loans allow the homeowner to use their existing equity in their home as collateral in order to get a low interest loan which is big enough to pay off their existing jumbo loan in addition to other debts like high interest credit card debt, car loans, s or any other debts the homeowner could have.

When considering refinancing a jumbo mortgage for debt consolidation purposes, realize you may not see an overall increase in savings. Homeowners that are consolidate their debts are more times than not struggling with making their monthly payments and are looking for an option which makes managing their monthly payments affordable.

In addition, debt consolidation can also make paying you bills easier as you only need to make one monthly payment as opposed to several. Even if the there is no worry about meeting your monthly obligations just the simple act of writing all those checks month in and month out and the time and effort required to do the same can be overwhelming for some people. For this reason, a lot of homeowners will refinance their jumbo mortgage just to simplify their life.

Using the Existing Equity in Your Home

Another valid purpose for refinancing you jumbo mortgage is to gain access to you equity in the home. Homeowners that have a lot of equity in their property might find they're able to take some cash out of the new jumbo loan for other purposes. This might include doing some home improvements, taking that vacation you always dreamed about, starting a business and being your own boss, or continuing your education. There is no limit on how or what you could use the equity in your home for home when you refinance your jumbo mortgage it could be used for any purpose you can imagine.

Regardless of the reason for refinancing your jumbo mortgage, now is the time to act. The lending environment is very unstable today and investigating your options when it comes to refinancing your jumbo is probably a wise decision.

Monday, June 8, 2009

No Doc Jumbo Loan

Today I just found myself reminiscing about the rock and roll mortgage days when no doc jumbo (reduced documentation) loans actually existed.  You know that  loan that only required the borrower to basically put his or her social security number on the 1003 form and sign their John Hancock.  Yep, it was that easy!  No bothersome questions like; how much do you make! Doesn’t matter at all because it’s a no doc jumbo.  What are your debts?  No need to list that on the 1003; it’s a no doc Jumbo loan.  

Sure, the credit report is going to list your obligations, but the only thing an underwriter is going to look at on a no doc jumbo is the score.  As a matter of fact, the only thing the underwriter was going to look for on entire application is the social security number and the signature.  That’s it.  This isn’t even a lie to me loan, this is a I don’t want to know anything about you loan.

  Looking back, it almost seems surreal, but believe it or not, there was a legitimate need and purpose for no doc jumbo loans  and  no doc loans in general. 

Think about how the economy has changed in the last 20 years, when the no doc jumbo first appeared.  

Americans were no longer working for a company where they would spend their entire lives or getting regular paychecks every Friday and putting in their 30 years then retiring.  No, Americans were changing jobs and  doing  jobs that didn't even exist 5 years earlier.  They were starting small businesses and availing themselves of sophisticated tax solutions. If someone were to look at their tax return, it would show an income of next to nothing.  Instead of wasting Mr. Bankers time applying for a $500,000.00 loan where his response might be "what are you doing here  you should be at the welfare office applying for food stamps and housing assistance". Everyone knew what was actually happening.  

These were good, credit worthy borrowers who took care of their personal business and that was reflected by their credit scores.  There was plenty of equity in the homes they were seeking to encumber as the loan to value (LTV) ratios at inception didn’t exceed 80%. This was simply a mortgage product that was devised to fill a need that was created by the modern economy.

Problems began to emerge when lenders stretched the no doc jumbo to fit the unqualified borrower that was sitting across from them.  While they had good credit, their debt to income ratios wouldn’t support the loan.  But, the numbers were only off by a smidge.  If the borrower just didn’t eat out as much, the numbers would work.  But why worry about getting the borrower to take the steps?  Let’s just do a no doc jumbo, and that’s how it all started.  Soon, hotel maids with a yearly income of $50, 000.00 were taking out $250,000.00 no doc jumbo refi loans and on $350,000.00 houses they bought a couple years earlier for $100,000.00.

I’m not trying to pass judgment on the mortgage industry or speculators or just homeowners that got caught in the fiction of the free lunch real estate boom.  What I am doing is mourning the passing of the no doc jumbo.  There is still a legitimate demand for this product and those who can afford and utilize them. Unfortunately they are getting harder and harder to get. I sure wish the no doc jumbo was here today.

Friday, May 8, 2009

Why Pay Attention to the Jumbo Mortgage?

You know, I’ve seen a lot of mortgage experts decry jumbo loans as mortgages used to purchase luxury real estate. Like we were still living in the 1970’s, when a gallon of gas costs 32 cents and the single family sold for 50 thousand dollars, instead of 2009. Lots of people need to wake up and realize $417,000 in today’s housing market isn’t luxury.

This brings me back to the point of my title for this post. Actually, It should probably read why in the world do you care about jumbo mortgages enough to write a blog about them? Well, once the image of Lucy telling Ricky “you got a lot of splaining to do” gets out of my head. It becomes quite clear. Today, May 2009 the Jumbo mortgage is the most unadulterated mortgage product on the market. Think about that.

The federal government can throw mountains of cash at TARP, Fannie Mae, Freddie Mac, AIG you name it. The financial system has become so far removed from the capitalist free market system that natural indicators of the market movement are useless. Supply and demand, GDP, import/export, unemployment etc. out the window as far as economic indicators are concerned. There’s just too much government manipulation. Then consider the FED’s influence on the mortgage interest rate and money supply  and where can you possibly go to gauge what’s happening in the mortgage and housing industry.

Well if you are a DC insider in the mortgage, homebuilding, finance, realtor complex you may have a clear picture of where the economic foundation sits and what the future may hold, but I don’t have that luxury.

Now, let’s consider the jumbo mortgage used as an economic indicator. It does retain some stability to the traditional mortgage industry before things got crazy and out of hand ( I just love using technical terms like that). This is a mortgage product tied to the guiding economic principals which exhibit natural constraints that can’t be found elsewhere. The jumbo rate is probably the most unmolested indicator we have in today’s market. When taken in total with the origination and funding figures,the jumbo mortgage offers the truest reflection of our residential lending capacity.

Anyway, that is one of my motivations for maintaining this site. If you disagree write your own blog. Then again, I am always open to and welcome discussion, feel free to enter the fray.

Ps……. Last post I promised to enlighten you on how to get a Jumbo loan without getting a jumbo mortgage. If you already know the answer, buh bye see you next post.  If you know it and want to stick around to sling a cheap shot…. Don’t.  I’ve owned mortgage companies and was and continue to be truly astonished by how many loan originators, processors  don’t have a clue to the answer until you point it out to them. It just never dawned on them. So the answer is ….drum roll…..please.

Get two loans! Look, if the confirming limit is $417,000 and you need a mortgage for $500,000. Run the first for the limit and do a second for the difference.  Why get spanked on the entire $500,000 with a jumbo rate when you only have to pay the premium on the difference you need to make up? Of course this assumes you’ve got the LTV et al to do the deal. It also comes in handy when your lender doesn’t want to do a deal because of restrictions we discussed in the previous posts. Anyway, there you have it a jumbo loan without a jumbo mortgage.

Monday, April 20, 2009

What is a Jumbo Mortgage

Jumbo Mortgages are those pesky mortgages that due to their size don’t fall into the Fannie Mae and Freddie Mac guidelines for confirming loans and therefore can not be purchased by them. At the moment that limit is $417,000 in most of the country but can go as high as $729,750 in areas the government has designated as High Cost for single family homes. Before the housing crisis and  credit crunch this wasn’t much of a problem. Banks could write a loan and then sell them off to institutional buyers. There was a vast liquid network tha had lots of competition. Those days are gone. Now when a bank writes a jumbo loan it‘s forced to keep it on the books. If cash is tight like it is today. Banks aren’t too eager to push this product and the price (rate) is driven up if you can find a bank that wants to do a deal.

Should investors take their money out the stock market and seek safer investment in things like bank CD’s , savings accounts, etc. this would bring more money in the banks front door and the cash restrictions on the banks would be alleviated allowing more activity in jumbo mortgage products.

Government bailout money should also have an effect on the liquidity issues. There are some faint positive signs that lenders are becoming more receptive but it probably too early to tell.

Raising the Fannie/Freddie conforming guidelines would have the greatest effect alleviating the pressure that is building. But don’t look for a return of the rock and roll days of the past any time soon.


What you should know about Jumbo Mortgages


Since banks are going to have to keep these loans on the books. I would be hard pressed to believe that more than 7%-9% of their business is going to consist of this product. I think that figure is probably very aggressive.

Keep in mind that they are going to have some stiff underwriting guidelines. If you don’t have a credit score of 725 and at least 20% to contribute to the deal you can pretty much forget getting a jumbo loan today.

 Next think of your lender as a money store. If your score and LTV are solid and they won’t do a deal it's probably because they just have run out of money. They have done all the deals they intend to do that month. If you’re at the end of the month your deal may get approved when it rolls into the new month. I know it may sound funny but banks run out of money. Now, they are not going to carry a high percentage of jumbo’s in their portfolio. When they reach a ratio they feel comfortable with they will stop doing any more of the loans. It's that simple.

If you are in the market to refinance pay attention, you may have acquired you property with a jumbo but won’t need one to refinance. In 2004 the standard conforming single family limit was $333,700 and in 2005 $359,650. Today, you may fall within Fannie Mae/ Freddie Mac guidelines for a conforming product. 

If you qualify and have found a lender that will fund the deal, congratulations your one of the select borrowers that’s get’s to pay a premium on the rate. At present the jumbo rate is around 6.375% on a 30 year fixed rate loan. The 30 year fixed conforming is under 5%. 

Next post I tell you how to get a jumbo loan without getting a Jumbo Mortgage

Jumbo Mortgage

Welcome to Jumbo Mortgage. This site is dedicated to staying on top of the ever changing mortgage market and in particular that special mortgage product known as the Jumbo Mortgage. With the arrival of the housing collapse and the credit crunch they have become more expensive and harder to qualify for. With the right knowledge and correct information great deals can still be had. Should you have a question regarding Jumbo Mortgages that have not been addressed, please feel free to contact me via email or comment.