Should Jumbo Mortgage Borrowers Receive Financial Help?

by 10 May 2013

Jumbo mortgages are traditionally associated with luxury homes and other residential properties typically located in neighborhoods where higher costs of living tend to keep middle and working class house hunters away. For this reason, jumbo loan borrowers are not typically thought of as the type of mortgage applicants who need financial assistance. In the strange post-bubble days of the American housing market, however, unusual programs designed to stimulate the real estate economy continue to emerge.

Doctors and university professors are not normally associated as professions in need of financial handouts, but that is actually what is happening in some regional housing markets in California, New York City and even the prosperours neighborhoods surrounding Washington D.C. In these areas, some banks and employers are coming together to help physicians, higher education instructors and information technology specialists move into homes that require mortgages that are too high for Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA) to guarantee. 

Unusual Financial Assistance and Incentives

According to a recent MarketWatch article, some traditionally middle-class neighborhoods in California have been transformed into 21st century jumbo markets. Such is the case in various modest-looking residential subdivisions south of San Francisco and north of San Jose; this is the area known as Silicon Valley. High technology workers who move to Silicon Valley tend to suffer sticker shock when they find out that an unimposing three-bedroom California ranch-style home requires them to fill out a jumbo mortgage application.

California homes priced higher than the current FHA, Fannie Mae and Freddie Mac loan limits are not difficult to find. The Golden State has seen enormous economic growth in the last few decades, and local employers are committed to keep the momentum going by hiring out-of-state employees. They certainly do not want to become understaffed due to expensive mortgages. 

To make things easier for employees relocating to California, some Silicon Valley employers are offering financial assistance to home shoppers who need to qualify for jumbo mortgages. Some employers offer one-time disbursements that can be considered advance payments of performance-based bonuses. Other employers actually partner with banks to provide private guarantees on second mortgages that can help employees close on a jumbo loan deals.

The U.S. Government Pitches In

It's not just the private sector helping out to get jumbo loans to the closing table. FHA loan limits and mortgage terms have been modified in parts of the U.S. Under some circumstances and in certain regions, the FHA could provide guarantees up to $729,750 with credit scores under 620. This would also require a debt-to-income ratio lower that the FHA and the originator can live with, plus a down payment of at least five percent. Such cases would also require manual underwriting, which could push the loan to a lengthy period for processing and approval.