What Every Buyer Needs to Know
Jumbo Financing
Jumbo financing is largely split into two camps in this market. There are those who are “private bank” type clients and those who are traditional Jumbo consumers who do not have the financial firepower to be considered high net worth. As the private banking clientele continue to be offered pricing and products typically not available through traditional channels, I will focus on the other group here.
The most obvious characteristic of today’s Jumbo market is the pricing disparity between Fixed and Adjustable loans. Most well priced Fixed Rate Jumbo products range from 6.000% to 6.625% with a 1 point cost. This is the market segment that is still most affected by the lending industry’s reluctance to take on risk. In this case, the main fear is runaway inflation (as a result of our loose monetary policy to spark the economy) that would erode the return over time of these products. While 6.500% in a historic context is great, when compared to the current Adjustable market, it seems relatively high.
In comparison to the Fixed market, the Jumbo ARM’s are priced extremely well. For loans up to $5.0MM, one can expect 3 and 5 year money at about 5.00%, with 7 and 10 year money in the mid 5%’s. While the pricing is obviously enticing, the issue at hand is that there are only a handful of investors selling these products. We expect a 45 day escrow for purchases and maybe a bit longer for a refinance. If those timeframes don’t work for the deal, we have an internal banking product that sells for .125% to .250% higher in rate, but we are able to close it several weeks earlier.
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