In the post-recession mortgage market, the term "jumbo loan" has been somewhat stigmatized, as the product is frequently associated with the subprime crisis and the subsequent economic downturn.
But as lenders grow more accustomed to navigating the parameters of the Qualified Mortgage rule and other recently implemented regulations, the jumbo loan market has experienced a minor renaissance. Terms for traditional mortgage credit approval remain necessarily strict, so much of the demand for jumbo products has come from other corners of the prospective homebuying population. Specifically, active military members and veterans - many of whom have recently returned from tours of duty - are taking advantage of their eligibility for loans through the U.S. Department of Veterans Affairs.
Increased flexibility, ample opportunity
As a recent Wall Street Journal piece detailed, jumbo VA loans offer attractive interest rates, comparatively minimal down-payment requirements and a waiver on private mortgage insurance. The life of the loan is guaranteed by the VA, though the loans are available through local banks, credit unions and other private lenders. VA mortgages can be equipped with fixed or adjustable interest rates - typically the latter for jumbo products - and can be used for either primary or secondary residences. In essence, they afford flexibility for the borrower that simply can't be gained by way of more traditional loan products. In high-priced Northern California, for example, veterans are able to apply for jumbo VA loans with no money down for homes priced at over $1 million.
In 2013, more than 1,500 lenders serviced VA-guaranteed loans, and more than 3 percent of those loans exceeded limits or ventured into jumbo territory. It's a phenomenon that has helped overall mortgage credit availability improve, with many lenders loosening the reins on their qualification standards as the market demand for jumbo products becomes more apparent.
And while the VA loans are available to current and former military personnel per the terms of the 1944 GI Bill of Rights, expanded inventory is critical to sustaining purchase activity of all types. This will be especially evident as approval standards become more relaxed, or as more borrowers make themselves eligible under the current conditions.
"Veterans and service members purchase homes for the same reasons as the general public, tied to work and their desire of where they want to live," Jeff London, deputy director of the VA Loan Guaranty Service, told the Journal. "This program allows them to purchase a home where they choose."
Veterans are still encouraged to conduct research and get their finances in order, just as they would when applying for a traditional home loan. Among the other factors to consider:
- Shopping around still helps. Since VA loans are offered by a wide range of lenders, qualification terms can vary, especially across different regions where marketplace supply-and-demand dynamics differ. Furthermore, there are simply some servicers who are more accustomed to working with certain products, such as VA or jumbo loans.
- Limitations based on entitlement. Veterans who have borrowed through the VA before face different restrictions for what size loan they're eligible to take out. In other words, while entitlements can be regained with time, if an individual took advantage of a VA loan of any type within the past 10 years, they may not qualify for a 30-year loan term, particularly if they're shopping in a higher-priced market.
- Credit still matters. Mortgage underwriting standards remain rather strict regardless of the home loan product in question. The borrower must still be in solid credit standing and display a reasonable ability to repay - a process that could include an income analysis and the same financial background check that any other borrower is subject to.