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Tuesday, May 27, 2008

VA Jumbo Mortgages

I marched in the Memorial Day parade yesterday - I'm a Viet Nam vet. After the parade there were several comments from people about what a great parade Milford puts on with fly-overs, military vehicles, marching bands and lots and lots of vets. Several thousand people lined the parade route to cheer and honor the vets who marched. It does feel good to be so honored.

It’s fitting that the day after Memorial Day there should appear a story in the real estate news feeds about the VA’s Jumbo loans program. A jumbo mortgage in Michigan would be one for more than the current $417,000 limit for Fannie Mae and Freddie Mac qualifying loans.

For years, the Veterans Administration has allowed "Jumbo" VA loans; it's just that hardly anyone knew about them. The current VA loan limit with zero down, is $417,000, matching the conforming loan limits set by Fannie Mae and Freddie Mac. But the VA does make allowances for VA loans above that amount, called Jumbo loans..

Current Jumbo fixed rates are anywhere from 1.00 percent to 1.50 percent higher than conforming rates. That's a lot, and has many Jumbo buyers in a quandary. A 30 year fixed conforming rate might be 6.00 percent while a similar Jumbo rate could be 7.50 percent. That spread used to not be so vast. Prior to the current mortgage mess, Jumbo rates were typically about .25 to .5 percent higher than a conforming loan. But not so with a VA Jumbo loan. VA Jumbo rates are near conforming rates, about .25 percent higher. And loans can be as high as $700,000.

If you're a qualified Veteran or Reservist, there simply is no better home loan out there with no money down. Period. Even when every lender on the planet was shouting "No Money Down!" for their home loans it couldn't hold a candle to a VA loan when comparing rates and closing costs. As long as the VA loan didn't exceed $417,000 ($625,000 for Alaska and Hawaii). But a little "quirk" in VA lending allows for VA loans above that $417,000 as long as the veteran comes up with some down payment -- as with any Jumbo mortgage.

To figure out how much down payment a veteran will need, simply multiply the amount of the sales price over $417,000 and take 25 percent of that. For instance, a home sells for $650,000. Now subtract the maximum "zero down" VA loan amount of $417,000 and you get $233,000. 25 percent of $233,000 is $58,250. That's the down payment needed from the veteran. That works out to about 9 percent down payment on a $650,000 home! As on all VA loans, there is a Funding Fee of about 2.2 percent of the loan amount but that can be rolled into the loan and not paid out-of-pocket. In this example, the final loan amount would be about $604,750. With a conventional Jumbo loan, you'd need 20 percent down and pay a higher rate, say 7.50 percent compared to 6.25 percent.

Not all lenders will offer this program, so you'll need to do a little homework and even those that do may have their own VA Jumbo limits. But, if you're in the Jumbo market and are VA eligible, this could be the best program that you'll find anywhere. If you’re a Vet and have never used your VA benefits, now may be the time. The prices on homes that might qualify for Jumbo mortgages have never been better and now the VA rate is the best way to go. Veterans returning from active duty, could be in position to take the best advantage of this program, since they might have saved up and have the down payment for a bigger home.

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