What is a Jumbo loan and why is it so hard to get?
The historically low interest rates that we have been seeing in the last few years apply only to "conforming" loans, or those less than $417,000. If you need to borrow more than that amount, your are applying for a "jumbo" loan. In Winnetka and other North Shore communities (Wilmette, Kenilworth, Northfield, Glencoe) where house prices are high, jumbo loans are more necessary to secure but are also more expensive and difficult to obtain.
In general, jumbo loans require a 20% to 25% downpayment and 6 to 12 months in reserve (PITI) and qualifying has become so much more difficult.
The National Association of Realtors recently did a study:
"The research reveals that limited availability and higher interest rates in the jumbo loan market are adversely affecting the rest of the housing market and holding back a genuine housing recovery."
The current economic crisis and economic credit crunch in the jumbo mortgage market has stymied sales of high-end homes. With Winnetka's average house price being $1,345,627 (2007) I would say jumbo loans would be a prime mortage tool. But issuance of jumbo loans has fallen from 15% of all loans to just 6%. Clearly, the higher jumbo loan standards that are required of buyers are negatively affecting the housing market and any chance of recovery.
Interestingly, some high-end areas of the country such as California and New York qualified for a newer type of confirming loan where the maximum of $417,000 was increased to $729,750. Unfortunately, the North Shore did not qualify because all of Cook County was factored in, lowering our median price.
The jumbo loan market plays a significant role in the overall housing market. The availability of jumbo loans is particularly important in high cost areas such as ours. The National Association of Realtors is working with policymakers to insure that these jumbo mortgage loans continue to be available, and so help stabilize the housing market and help lead to a quicker broad economic recovery.
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