What’s Going On With Mortgages?

Kim Lucas

10 months ago

(Mortgage info – provided by Michelle Cellular Nose with Leeward Island Mortgage.com)

Credit supply for mortgage-backed loans increased 2 percent in April and was driven by a 7 percent gain in the jumbo index, which reached its highest level since the beginning of the MCAI in 2011,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Additionally, investors continued a trend from March of further increasing their willingness to purchase more non-QM and non-agency jumbo loans. The high-end of the purchase market had shown weakness earlier this year, before the recent decline in mortgage rates, and it appears investors are trying to remain competitive in that segment of the market.”

Loan Limit Tables for the USVI

Loan Limits are the maximum amount of money allowed to be lent for a particular kind of loan. Different types of loans have different limits. Below are the 2023 loan limits for the USVI, which are 10.9% higher than in 2022.

Conforming Loan Limits

Conforming loans must meet the guidelines set by Fannie Mae and Freddie Mac. If a mortgage exceeds the conforming loan limits then it is considered a jumbo loan.

$1,089,300 –  Single-Family
$1,394,775 –  Duplex
$1,685,850 – Triplex
$2,095,200 –  Quadplex

FHA Loan Limits

FHA Loans are home mortgages insured by the Federal Housing Administration. FHA Loans let you get a home loan with a lower down-payment and relaxed credit score requirements. These limits are up in 2023 by

$472,030 –  Single-Family
$604,400 –  Duplex
$730,525 –  Triplex
$907,900 –  Quadplex

VA Loan Limits

If you qualify, veterans loans allow you to buy a house with zero money down.

$1,089,300 – All Home Sizes

HECM Loan Limits

Home Equity Conversion Mortgages (HECM) allow seniors to convert home equity into cash for unexpected expenses.

$1,089,300 – All Home Sizes

Is Qualifying for a Jumbo Mortgage Different?

Jumbo mortgages have the same overall qualifying methodology as a conforming loan. Lenders will look at credit score, down payment size, total monthly debt obligations relative to income (called your debt-to-income ratio), and money left over after closing.

Credit score requirements are about the same for conforming and jumbo: a credit score down to 680 generally gets you most available loan options, albeit with a higher rate than you’d get with a top-tier credit score of 780 or greater.

As for money left over after loan closing — often called reserves or post-closing liquidity — jumbo loans will be more stringent than conforming. Typically jumbo lenders want to see 12 months of reserves after the close, half liquid (in a checking or savings account), and half calculated from retirement assets. Conforming loan reserve requirements range from 0 to 12 months, depending on factors such as credit score, down payment, and DTI. Jumbo exceptions are available if your debt-to-income ratio is low and your down payment is high.

How Do Jumbo Rates Compare to Conforming Rates?

Before the financial crisis of 2008, jumbo loans typically had rates at least .25 percent higher than conforming loans because jumbo lenders were perceived as taking more risk making loans that couldn’t be sold to government-backed Fannie Mae and Freddie Mac. This risk translated into higher consumer rates.

In the years following the financial crisis, federal regulations have impacted rate markets in such a way that has enabled banks to keep jumbo rates about the same as conforming rates.

Here is a breakdown of how lenders calculate what you can afford (for any price point):

Gross income. Essentially, this means your base salary plus your bonus income, including self-employment earnings, part-time earnings, alimony, child support, disability, and Social Security benefits.
Front-end ratio. Also known as the mortgage-to-income ratio, the front-end ratio is the percentage of your yearly gross income that you can dedicate toward paying off your mortgage every month. The four components of principal, interest, taxes, and insurance make up your monthly mortgage payment. As a rule, your front-end ratio should be less than 28% of your gross income.
Back-end ratio. The back-end ratio calculates how much of your gross income is needed to pay your debts, such as credit card payments, outstanding loans such as car loans or student loans, or child support. This basically means if you pay $1,000 per month in debts and you make $2,000 per month, your back-end ratio is 50%. Most lenders suggest this ratio be less than 43% of your gross income.
Credit score. Mortgage lenders use your credit score as part of their formula to determine your level of risk. If you have a low credit score, you can expect to pay a higher interest rate. It is important to pay attention to your credit reports if you want to purchase a property.

Most prospective homeowners will be able to get a mortgage that is two to two-and-a-half times higher than their annual gross income. In other words, if you earn $100,000 a year, you should be able to afford a mortgage between $200,000 and 250,000. It should be noted, however, that this is a general rule.

When you are trying to decide on a house, there are a few factors that you will have to consider.

One is what your lender thinks you will be able to afford — which is calculated by your gross income, front-end ratio, back-end ratio, and credit score.
Another factor is what type of house you want to live in, for how long, and what types of consumption you are willing to give up to afford it.