Getting Easier to Get Big Loans
The gears of the mortgage market are starting to unlock for borrowers needing big loans. In expensive markets such as Washington, that covers most people looking to refinance or move up from an entry-level home.
Just in the past two weeks, interest rates on the new "conforming jumbo" mortgages -- for amounts between $417,000 and $729,750 -- have come down enough to make a difference to borrowers. And mortgages allowing down payments of just 3 to 5 percent are coming back to the market for borrowers who have good credit.
"The bottom line is rates are lower than they were," said Kevin Connelly, a vice president at BB&T.
Last week, for example, BB&T was offering 30-year, fixed-rate mortgages for a conforming loan, which is for $417,000 or less, at 6 percent interest with no points, a type of prepaid interest. A conforming jumbo cost only one-quarter of a percentage point more, 6.25 percent. Loans for amounts beyond $729,750, now called "jumbo jumbo" loans, were at 7.25 percent.
That 1-point difference is enough to matter in anyone's budget: On a $729,000 mortgage, the lower rate saves $484 per month.
Before you jump on one of these loans, though, check out FHA mortgages. Insured by the Federal Housing Administration, these loans are available for as much as $729,750, the same cap as on conforming jumbo loan amounts.
FHA's loan-amount cap has been raised through the end of the year so that the program can be more widely used in expensive areas, including ours.
Yes, the frumpy, old FHA program is now an attractive tool for most Washington area home buyers and refinancers. The beauty of the FHA program is that borrowers can still make a down payment of as little as 3 percent. Last week the interest rate on an FHA conforming jumbo was an attractive 6.38 percent.
"FHA has really, really been taking off," said Jim Foley, senior vice president of George Mason Mortgage's Bethesda branch. "You can have a lower FICO [credit] score; 620 and above is what they're looking for."
Major housing legislation that's being debated in Congress would make permanent the higher loan limits for both the conforming jumbos and the FHA program, with annual revisions as home prices change. But it's by no means a sure thing that the legislation will pass, and President Bush has threatened a veto.
As the law stands now, the higher limits will vanish as of Jan. 1, so don't dawdle.
Other good news for borrowers: Fannie Mae is removing its demand for higher down payments in areas it considers "declining markets," which includes most of the Washington area. Beginning June 1, Fannie will again accept mortgages with as little as 3 percent down.