Rates on jumbo mortgages in Texas, those above the federal agency conforming maximum of $417,000, have historically been higher in order to compensate for limited liquidity. Agency loans can readily be sold to other lenders, packaged for investors, or sold to Fannie Mae or Freddie Mac. The market is far more limited for jumbo loans, and many originating lenders keep these loans for their own portfolio. The rate differential between 30-year fixed conforming and non-conforming jumbo loans reached a high in December of 1.96%, partially due to a number of lenders pulling out of the market amid the credit crunch. Recently, this spread has dropped significantly to 1.31% according to data compiled by BanxQuote. The average 30-year fixed rate jumbo mortgage loan stands at 6.18% nationally, but lower rates can be found by working with lenders who specialize in these products. Contrast this with rates in the 5% range available for conforming loans and you can see the dilemma.
Nevertheless, refinancing makes sense for many homeowners who were relegated to accepting adjustable rate loans over the past year when fixed rate financing became scarce. Even a modest rate reduction can make economic sense to a homeowner concerned about the risk of rising rates over the long-term. Furthermore, rates at or below 6% still represent a historic low, and just 1/8th of a percent on a $1 million mortgage amounts to thousands of dollars in interest savings over the life of a loan.
Some pitfalls borrowers should be aware of include the absensce of so-called "stated income" loans that many self-employed borrowers favored over the past several years. Borrowers who cannot substantiate sufficient income to cover their mortgage debt as well as other outstanding payments will be hard pressed to qualify. In addition, lenders are also seeking increased documentation of assets and requiring greater liquid reserves, some as much as 12 months. Lastly, expect your lender to look critically at your appraisal. In many parts of the country where housing prices are falling precipitously, two, and even three appraisals are being mandated. While the Texas housing market has largely avoided the crisis levels of Nevada, Michigan, and Florida, recent data indicate the high-end home markets locally are indeed being affected by the housing downturn. According to Crawford Realty Advisors, annual sales of homes valued at $500,000 or more in the Houston area dropped for the first time this decade. Lastly, financing a "cash-out" transaction can prove particualrly difficult as Texas has some unique laws limiting the amouny of cash a borrower can take out of their home when refinancing.
Three tips to keep in mind as you search for a lender to handle your refinance. First, choose a mortgage broker that mainatins a specialty in jumbo loan financing and has access to a number of different lenders. This may help you get the best rate and terms possible in the marketplace as your own bank's programs may be limited. Second, check our your broker. Make sure they display the Lending Integrity seal and are seasoned in the mortgage industry. A certification such as a Certified Residential Mortgage Specialist (CRMS) or Certified Mortgage Consultant (CMC) is a plus. Lastly, be mindful of fees. You might find a great rate, but multiple origination and discount points, coupled with miscellaneous fees can quickly wipe out the rate advantage of one lender over another.
Now is still a great time to refinance, you just need to know where to look.
About the Author
Mike Lesmeister is a licensed Texas Mortgage Broker and Partner with Home Loan Specialists, Inc. in Houston, TX. He assists luxury home buyers finance the acquisition of residential real estate and hleps existing homeowners refinance to a lower rate. Mike can be reached at MikeL@hlstx.com.
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