Houston-area mortgage loans that do not exceed $417,000 are generally known as “conforming” and are subject to standard underwriting constraints as outlined by Fannie Mae and Freddie Mac. Individual lenders add additional stipulations to reflect their degree of conservatism, to restrict demand to their preferred niche, or to temporarily adjust the level of loan activity.

Loans above $417,000 (in most areas of the US) are considered “non-conforming” and are categorized as “Jumbo Loans”. In areas of the country where average housing prices are extremely high (California and New England etc.), the conforming limit can be adjusted upward to over $650,000. These loans are considered “super-conforming” and are priced the same as conforming but with an added adjustment to the price of the approximately 35 basis points. This effectively raises the rate by only ? % for super conforming above conforming loans.

Throughout 2009 until mid-2010, jumbo loans were very difficult to obtain through traditional lenders who sell their originations on the secondary market. During that time, Fannie and Freddie would not purchase these loans and consumers were restricted to local banks and portfolio lenders (those that originate and service) at far higher rates, or with lenders who limited their programs to adjustable rates only.

An alternative for Texas mortgage loan amounts in the $420,000 to $515,000 range was (and remains) a combo loan featuring a $417,000 conforming first lien in tandem with a second lien (at a higher rate) for the remaining balance.

Today, high quality Houston jumbo loans can be sold to Fannie and Freddie if credit scores exceed 775, the borrower’s reserves are plentiful, and loan to value ratios are no higher than 80%. This has dropped the rates on these jumbos to within 50 basis points of conforming. Portfolio lenders have been forced to lower their rates and have also begun to offer competitive fixed rate programs for highly qualified borrowers. Portfolio lenders are now able to offer jumbos to borrowers with scores as low as 650 on adjustable rate programs or at risk-adjusted fixed rates.

Texas jumbo loans generally take up to 60 days to close after initial application for several reasons.

· Property valuations are far more difficult (re: expensive) as few comparatives exist. This causes lenders to order multiple appraisals and, frequently, these are subjected to underwriter desk reviews.

· Jumbo borrowers are more likely to be self-employed or professionals whose income trends and streams are inconsistent, cyclical, or tied to economic cycles and, therefore, demand credit and tax reviews which are ordered through third parties (such as the IRS) with predictable delays.

· Construction delays attributable to last-minute change orders for trim and cosmetic preferences.

The final message I want to convey is that jumbo loans are alive and well at Home Loan Specialists. The ideal borrower has a minimum 780 FICO; at least 12 months of liquid reserves covering principle, interest, taxes, and insurance; total debt not exceeding 38% of gross monthly income; and a minimum of 20% equity. Jumbos are also available to those with lower credit scores (min. 650) at higher fixed rates or competitive ARMs.