Home prices across California have risen steadily over the past few years. As a result, more and more home buyers are using jumbo loans in California, to finance their purchases.
Fortunately, access to these mortgage products has improved. A recent industry report showed that jumbo loan availability in California and nationwide has improved over the past year.
Rising Home Values Lead to Bigger Mortgages
The Mortgage Bankers Association (MBA) recently published an analysis that showed increased access to jumbo mortgage loans during the summer of 2018. In California, jumbo loans are used by home buyers who need to borrow more than the conforming loan limit for their country. And with home prices rising steadily in most cities, there are more and more of borrowers in that situation.
According to the real estate information company Zillow, the median home value for the state of California rose to $541,800 as of August 2018. That was an increase of 7.1% over the same month last year. Looking forward, their economists predict that home prices will rise by around 8% over the next year (ending in August 2019).
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California is already one of the more expensive states in the country when it comes to buying real estate. And with home prices rising further, we could see an increase in the number of home buyers who use jumbo mortgage products in California.
Definition: A jumbo loan is basically a non-conforming mortgage product that’s too big to be sold to Fannie Mae and Freddie Mac. It exceeds the conforming limit for the county where the home is being purchased. Due to the larger amount being borrowed, these products can also have stricter requirements than smaller loans.
What many borrowers find surprising is that jumbo loans actually have lower interest rates (on average) than smaller conforming mortgages. It seems counterintuitive, but that has been the case for the last few years. This is based on surveys published by the MBA and other sources.
California Jumbo Loans More Readily Available
The good news for those seeking a jumbo loan in California is that credit access has improved in this category. Basically, that means these products are easier to obtain today when compared to the past.
Using data provided by Ellie Mae (a mortgage loan software company), analysts from the Mortgage Bankers Association discovered that credit availability increased by 1.7% in July 2018. That indicates broader access to credit across the board. So overall, it appears that it has become easier for borrowers to qualify for financing.
According to Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting:
“Credit availability continued to expand, driven by an increase in conventional credit supply. More than half of the programs added were for jumbo loans, pushing the jumbo index to its fourth straight increase, and to its highest level since we started collecting these data. There was also continued growth in the conforming non-jumbo space, which reached its highest level since October 2013.”
In California, jumbo loans are most commonly used in higher-priced real estate markets like those here in the Bay Area. But they’re also used in more affordable markets by those buyers who want to purchase a “high-end” property that exceeds the loan limits within that county.