With record-low interest rates and a growing work-from-home trend, borrowers across the country are eager to invest in their forever homes. Buying a home in a sizzling market, however, may require more than just a typical mortgage. These borrowers might need some-thing bigger.
A jumbo loan is exactly what it sounds like — a type of mortgage that is too big to be guaranteed by the government-sponsored enterprises, Fannie Mae and Freddie Mac. These loans also include amounts above the standard conforming limit set by the Federal Housing Finance Agency (FHFA).
Jumbo loans can be more difficult for prospective borrowers to obtain, especially since lenders typically require a higher credit score to protect against the increased risk. As a mortgage originator, you can help borrowers navigate unfamiliar territory and provide them with creative solutions— all while watching your business grow in a new direction. Here are the main benefits you’ll see when adding jumbo loans to your product offerings.
As the mortgage industry shifts, it’s crucial for you to stay informed about unique solutions that can generate more business. Historically, jumbo loans have accounted for a significant chunk of the nation’s total origination volume.
By ignoring this sector and not originating jumbo loans, you risk leaving money on the table. Mortgage professionals who tap into this market can expand their portfolios and take advantage of working with a whole new set of borrowers.
And these borrowers are not only the ones you see on the reality TV show, “Selling Sunset.” In fact, jumbo loan clients can range from first-time homebuyers who are looking for properties in expensive markets to seasoned buyers who want to purchase a more luxurious home.
But remember, jumbo loans are specifically for the borrowers who don’t fit the traditional mortgage box. Sure, this can be a family purchasing a lavish mansion, but you’ll also find borrowers who are looking for condominiums, townhomes, cooperatives and two- to four-unit homes under the jumbo umbrella.
Establishing borrower relationships is key if you want to be successful in the mortgage industry and get ahead of the competition. Jumbo loans are one way to do that.
Taking the time to understand different loan solutions, such as jumbo mortgages, can help you gain a strong reputation among your current clients and can even help you acquire new borrowers. Sure, you can be the go-to mortgage originator for a standard conforming loan, but being able to provide knowledge on other alternative products will take you to the next level.
Mastering jumbo loans can help you become a reliable and sought-after mortgage professional, making your company a one-stop shop that borrowers can go to for all kinds of products that fit their varying needs. This gives you every opportunity to win more business.
If you offer jumbo loan solutions to clients, you will likely benefit from having a working relationship with top lenders in the industry. A good suggestion? Affiliate yourself with lenders that offer a complete suite of products to better serve jumbo borrowers.
These can include jumbo qualified and non-qualified (non-QM) mortgages. Qualified mortgages meet certain borrower and lender standards as outlined in Dodd-Frank Act regulations. Meanwhile, non-QM loans fall outside these standards, but borrowers still must meet the ability-to-repay requirements. Non-QM can be a way to allow well-qualified borrowers to obtain a jumbo loan.
It’s no surprise that due to the current state of the U.S. economy, some lenders are not willing to offer non-QM loans, which are perceived as riskier. Still, there are a number of lenders that are beginning to originate these products and offer more options to borrowers. By partnering with these types of lenders, your chances at gaining more clients will grow.
Working with jumbo loan borrowers will provide you with more opportunities, but it’s important to distinguish these borrowers from your other clients. They will need to meet certain criteria when applying for a jumbo mortgage.
Jumbo loans typically involve manual underwriting, which differs from the automated underwriting of conforming loans. Lenders will typically require borrowers to have a high credit score, generally 720 or above, when applying for a jumbo mortgage. This is due to the increased risk for lenders.
Jumbo mortgage rates are often higher than those of a standard conforming loan. Still, rates aren’t set in stone. Take, for example, the effect that the COVID-19 pandemic had on the mortgage landscape in 2020. Jumbo rates are far lower than they were pre-pandemic, making it possible for these borrowers to score great deals.
Mortgage originators can expect their jumbo clients to submit more documentation with stringent guidelines. Lenders want paper-based evidence that your clients will be able to handle the debt payments.
These loans may not take much longer to process than conforming loans — it depends on how quickly a borrower can provide the documentation. If they provide documents quickly, the jumbo loan can be closed in a similar time frame as a conforming loan. Manual underwriting tasks may take a little longer than automated underwriting, so that piece may vary from lender to lender. This is why it is key for a lender to have a delegated jumbo option so they can maintain strong underwriting and closing timelines.
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As is evident from 2020, the mortgage industry is always changing. With new changes come new opportunities. As jumbo loans become viable options for borrowers across the country, you can tap into the trend and start growing your business.
Get started by searching online for lenders that offer a full suite of jumbo loans. These nonbank lenders will often have educational content on varying products, helping you expand your knowledge. In the end, you have to pay attention to jumbo mortgages or you’re going to miss out on a potentially large share of the market. ●