It’s really been somewhat of a quirk, perhaps even a phenomenon in the making for the past several months but it’s not uncommon in today’s market for a real estate investor who finances a jumbo property to get a lower rate compared to a conforming loan amount. In fact, some mortgage companies jumbo loan rates lowerwill even tell their clients that by borrowing just a little more, the lender could offer a low rate. What’s the story here?

Loans with the “jumbo” tag are mortgage amounts greater than the current conforming limit as issued by Fannie Mae and Freddie Mac. Today the conforming loan limit is $417,000 with certain high cost areas pushing $625,500 and above. Historically, any loan amount above that conforming limit would require a jumbo loan with higher rates. Loan officers would suggest multiple alternatives when a loan appeared to be a jumbo due to the higher monthly payments associated with the jumbo loan. This practice is common when the sales price and loan amount are in conforming loan territory.

For example, a bank might offer two loans, the first mortgage at the conforming limit and a smaller second mortgage with a slightly higher rate. Even with the second rate being higher the total monthly payments were still lower than a jumbo loan. Or borrowers could choose to put more money down just to get to the conforming limit. In the mortgage market today, it’s the other way around.

Jumbo loans aren’t eligible for sale to Fannie and Freddie because of the conforming loan limits but gradually the private equity markets have picked up the slack and more. There are more players in the jumbo market than there used to be and along with median home prices still on the rise there is a greater demand for the jumbo product.

If you’re a real estate investor and had only considered properties in a certain price range due to the rate variance, you should look a little further. You may be able to buy a larger property and have a smaller mortgage payment. That’s a considerable increase in monthly cash flow as higher end properties provide more rental income. This isn’t a short term blip. It’s been moving in this direction since last fall.