Downpayment Disparities

Market for Jumbo Loans Thaws (a Bit)

The weakest part of the housing market right now is the upper end -- specifically, homes in the upper six figures and above.

Why?

The soft economy, the stock market, 9.4% unemployment (make that 9.7% as of Fri.).

However, arguably an even bigger factor is financing.

Two Mortgage Markets

All you really need to know about mortgages at the moment is one number: $417,000.

That's the ceiling (at least in most parts of the country) for what's called a "conforming" mortgage.

Conforming mortgages are insured by the U.S. government, and therefore are considered safe.

"Jumbo" mortgages above $417k are not insured, and therefore are considered much riskier.

Jumbo Mortgage, Jumbo Risk?

To protect themselves, jumbo lenders typically require both a higher interest rate -- as much as 1.5% above conforming loans -- and a much higher down payment.

Whereas home buyers using conforming mortgages can get by with down payments as small as 5%, depending on their profile, "jumbo" lenders can require as much as 30% down.

How significant is that?

Huge.

On a $400k home, a Buyer with strong credit could conceivably put down as little as $20k, or 5%.

On a $1M home, a 25% down payment comes to . . . a cool $250k.

From "All or Nothing" to "Trade-Off's"

Since mid-Summer, there are some signs that the jumbo market is evolving from an "all or nothing" proposition to something more nuanced.

So, at least some lenders are willing to relax their down payment requirements in exchange for a higher interest rate.

Other lenders are differentiating more amongst borrowers based on their credit scores, offering lower rates to the strongest borrowers.

Too, lenders are increasingly willing to "staple" a conforming mortgage to a second, non-conforming mortgage.

All of the foregoing are helping to thaw the market for upper bracket homes.

Now, if only the economy cooperates . . .