So, you think your home mortgage payments are high?
Consider the commitment just concluded by John Meador, who obtained financing for his new two-story, Cape Cod home. His new mortgage loan balance is $675,000. His monthly principal and interest payments will be about $5,200.
Large mortgage loans are called "jumbo loans" by lenders. These are loans of more than $191,250, the maximum amount for individual loans that can be sold by lenders to the secondary market. For this reason, interest rates are usually a bit higher for these loans, and still higher for "superjumbo loans" -- those over $600,000.
Mr. Meador, who moved to California from New York City in 1979, considers his new home mortgage to be exceptionally good, despite the mind-boggling (to most of us) payments of more than $5,000 a month.
It's a 30-year loan with a fixed interest rate for the first five years of 9.75 percent. It will then have an adjustable rate for the remainder of the loan term.
"These jumbo mortgage loans were quite rare until recently," said Allan Stone, senior vice president of loan administration at a major bank. "We've been processing quite a few of them, with new loan amounts up to $1 million."
Mr. Stone noted that interest rates on jumbo loans have been significantly higher than on lower loan amounts (conforming loans). But recently, rates have dropped below the 10 percent level for both 15- and 30-year mortgage loans, he said.
Today, in most metropolitan areas, jumbo mortgage loans are becoming common, according to Jim Gilcrest, executive vice president of American Residential Mortgage Corp. However, he noted that fewer lenders now offer jumbos due to the collapse of the savings and loan industry and the volatility of the banking system.
"In-depth verification of asset information and more documentation on creditworthiness are today's norm," he said. "Most lenders now require two appraisals for loans in excess of $500,000, as well as interior photos of the home.
"Lenders generally offer jumbo loans with interest rates that are between 0.375 percent and 0.5 percent higher than those for conforming loans, and most require a down payment of 20
percent or more. The cash equity requirement usually increases with the size of the loan amount."
Mr. Gilcrest cited an example where a luxury home buyer obtained a $750,000 mortgage loan to finance the purchase of a $1 million home. With a gross monthly income of $20,570, the buyer qualified for a one-year adjustable-rate loan with an initial interest rate of 8 percent. The buyer's monthly payments were $6,603.28 including principal, interest, taxes and insurance.
The homebuyer's citizenship is often an important factor when considering jumbo loans, Mr. Gilcrest noted. Applications from aliens, including those with U.S. residency, often are rejected because of the difficulty lenders have in verifying income and asset information from sources outside the United States.
However, Mr. Gilcrest pointed out that the jumbo market is one in which lenders often make exceptions, depending on circumstances. The jumbo loan industry is a highly individualized business. Every buyer-borrower is different.
L Q: Why are so many real properties being sold by an auction?
A: Real estate auctions are indeed becoming more popular as a marketing technique. The number of residential properties sold by U.S. auction companies increased from 16,000 to more than 25,000 annually since 1987.
"Today's informed property sellers realize they may come out ahead by using an auction as a first -- not a last -- resort," according to Real Estate Today, a publication of the National Association of Realtors.
The primary advantage to sellers is a quick sale, even though the purchase price is often far below original expectations. It saves carrying and promotional costs that would be incurred by keeping the property on the market, and it generates cash that can be used in other ventures.
Q: Are Japanese investors increasing their acquisition of U.S. real estate?
A: No. The Japanese, facing increasing problems in their home country, are cutting back their investment in U.S. properties. This year, their total investment will be a paltry $6 billion to $10 billion -- a big drop from the $16.5 billion invested in 1988.
Send inquiries to James M. Woodard, Copley News Service, P.O. Box 190, San Diego, Calif. 92112-0190.