My friend said you can’t get a jumbo mortgage anymore — is that true?
Despite poor Jim Cramer’s recent bout of hysteria (see the “no idea how bad it is out there” clip here ) banks are still writing mortgages.
Really.
First, a little tutorial on some phrases used in the mortgage market — a bank lends you money to buy your home, and you put your house up as collateral on the loan. That’s a mortgage.
Now the bank does not really want to sit around with the Jones mortgage at 21 Elm Street and the Smith mortgage at 23 Main Street, etc., cluttering up its desk, so it resells those mortgages to people who bundle, or pool, them together.
In order to help home-buyers, the federal government helps that bundle and resale process through an agency called the Federal National Mortgage Association. That’s Fannie Mae.
Because the federal government — at least in this instance — doesn’t want to subsidize rich people, there are limits to the size of the mortgages it uses Fannie Mae to help. Smaller mortgages that fit, or conform, under these limits are called conforming loans. Bigger mortgages that do not are called non-conforming or jumbo loans.
The limits are re-set every year; this year, the line between conforming and non-conforming is around $400K for a one-family house.
But just because a jumbo mortgage isn’t supported by Fannie Mae doesn’t mean that other institutions — banks and other financial institutions — won’t package and resell them.
In fact, they still are. What people are saying when they say, “they’re not issuing any jumbo mortgages” is that fewer financial institutions are supporting them, so the prices are going up — rates on jumbos are pushing near 7%-8% as of this writing.
But you can still get one.