Jumbo Mortgage Rates Spike

The mortgage crisis is now front page news all across the United States. While conforming loans remain okay — primary loans with values below $417K and full income documentation for buyers with solid credit – the investor market for everything else is in trouble. The result is a rapid rise in rates. As for the condo market, there will be very little effect for buyers of units that are less than $500K. For the high-end market, however, the market change is dramatic.

First, many buyers who qualified for loans a couple of weeks ago will not be able to get financing at all today. For those who can still get financing, rates have risen dramatically and are currently hovering between 7.5% and 8.0% for jumbo 30-year mortgages.

Bankrate.com reported today that:

Buyers of pricey houses are finding that money has suddenly become more expensive to borrow. Ditto for loan applicants who don’t want to prove that they told the truth about their incomes.Rates on jumbo and Alt-A mortgages have zoomed upward since the last week of July, even as rates on conforming, fixed-rate mortgages slipped downward.The development is bad news for people who want to borrow more than $417,000 to buy a house or refinance a loan, or who can’t or don’t want to document their income. Rising jumbo rates make it more difficult to sell a house costing half a million dollars or more.

Over the last few months, hundreds of Austin buyers have put units under contract in new condo projects such as 360, the Four Seasons Residences, and the W Hotel & Residences. many of the buyers may no longer qualify for mortgages, or, may not be comfortable with the higher monthly payments now required. While every building is different, some projects do allow buyers to get 100% of their deposit back if rates climb over a certain threshold, one of the major buildings set this rate at 8%, or if buyers are unable to secure financing. With rates spiking, some buyers will be able to take advantage of these provisions.

For the majority of downtown units priced under $500K, including most of the units I buildings like 360, the current mortgage crisis is not catastrophic. While lending standards have tightened this week, most buyers with solid credit and documented income will still be able to qualify for the same traditional mortgage, just at a slightly higher rate.

For buyers who can afford the higher rates or our planning to pay cash, now might be a great time to negotiate with developers. If this crisis continues, it will be very difficult to sell many of the high-end units currently planned for downtown Austin.