For home buyers in the Greater Boston, Massachusetts area a jumbo loan means one that exceeds $523,750. Over the past two years, rates on these loans have skyrocketed, effectively putting a damper on this end of the real estate market.
Home buyers with large mortgages are now getting some relief from huge monthly payments as rates on jumbo loans have started to fall. As lenders have decided that it is now safe to reenter the upscale housing market, rates have fallen to around 6 percent. This narrows the gap between conventional loans and jumbos to 1 percentage point.
Housing prices in Greater Boston and other Massachusetts areas force thousands each year to go the jumbo loan route. And, high interest rates on these loans have seriously affected this segment of the market.
Guy Cecala, chief executive of Inside Mortgage Finance, an industry newsletter, has said that he is relieved by the drop in interest rates but that they need to drop more in order to have a major impact. "It's better because it was so terrible before, but we still have a huge way to go, Cecala said. "There are still a lot of borrowers out there who would like to trade up" to more expensive homes.
Rates on jumbo loans began their steep climb in 2007 when investors were frightened off by the subprime crisis. These loans are perceived as risky for lenders since they involve large amounts of money and are not backed by the federal government.
The situation is improving partly due to the fact that a growing number of lenders are feeling more comfortable with keeping these loans in their own portfolios. The perception is that since the housing market is stabilizing, keeping these loans in house is a safer investment than relying on the stock market.
Hopefully, this is a sign that the credit market is loosening a bit.
Buyers in this higher end of the market also have another option to consider known as a conforming jumbo. This loan was created by Congress last year. Conforming jumbos cover loans between $417,000 and $523,750 in the Greater Boston area with rates that average around 5.5 percent according to HSH.com and these loans are backed by the government.
In many of the high-end Massachusetts neighborhoods, the drop in interest has not yet made enough of a difference. Sellers in these areas are still holding out for prices that still too high in eyes of potential home buyers.
First time buyers, in particular, need guidance with their purchase to be able to negotiate a lower price and also avoid having to resort to the use of jumbo loans.
Do you have questions about buying a home in the Metrowest area? I would love to talk with you. Please feel free to call me at 508-881-6230 - any time or E-mail me.
Copyright 2009 - Claudette Millette, Broker, Owner, TheBuyersCounsel
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