To answer this question, we first need to understand what makes a loan Jumbo. Jumbo loans are loan amounts that are not purchased and securitized by Fannie Mae or Freddie Mac. These types of loans are known as conforming loans. Currently the conforming loan limit is $417,000 and in some high cost areas until the end of 2008 it can be as high as $729, 750*.
Any loan amounts that exceed these limits are considered Jumbo loans. Like conforming loans these can be packaged and sold to Wall St. But they often come with a higher premium (rate) because they are considered riskier by Wall St. This is where finding the best Jumbo Mortgage Rates comes in. If you work with a Fannie/Freddie Lender such as Chase, Citi, Wells Fargo, etc..All who sell a majority of their loans to Wall St; you will be subject to Wall St. restrictions as well as pay Wall St Rates and Fees.
However, if you bypass a Big Bank and work with a Niche Lender you won’t be subject to these same issues. Primarily, because these Niche Lenders do not package these loans for Fannie Mae or Freddie Mac. Instead they portfolio them. Meaning that they will hold the paper (loan) and personally collect the interest for the life of these loans. Therefore because they are doing this, this means that they can not only make their own rules when it comes to loan characteristics, but they can also set their own rates and fees. Which, all together they are much more favorable to the consumer.
For example, assuming all the variables are the same(credit score, income, assets) on a $800,000 mortgage for a $1,000,000 condo here in Chicago, the best Fannie/Freddie Lender quoted in the low 7’s on a 5/1 Arm. Where as the Niche Lender quoted low 5’s on the same loan. That’s almost 2 full percent on the same loan because one lender was going to portfolio the loan and the other lender was going to sell the loan to Wall St. This represents approximately $62,000 in interest and payment savings over the 5 year time.
When choosing a Mortgage Consultant for your Jumbo loan make sure they have the access to Niche Lenders and not just Fannie/Freddie Lenders. As you can see from the example above, it makes a huge difference.
*In February of 2008, the government along with Fannie Mae and Freddie Mac as part of its Economic Stimulus Package raised the conforming loan limit to 125% of an areas median home price. If the median home price in a certain county was $333,600 than the conforming loan limit stayed at $417,000. If the counties medina home price was higher, than the conforming loan limit was raised by 125% of this figure. The maximum limit on this increase was capped at $729,750. To see your counties conforming loan limit simply visit https://entp.hud.gov/idapp/html/hicostlook.cfm and enter your counties name and select Fannie/Freddie for the Limit Type.