There is rumbling on the web about the VA loans money for jumbo and super jumbo loans. Let’s be careful with the use of these terms and pull together the True North of VA Jumbos. We can begin with a couple of reminders and then tap on a couple of important points about these so called “Jumbos.”

I Reminders

A. The VA does not loan money. It guarantees a portion of the loans that lenders like American Banks FSB make for the purchase of homes. That means that the VA takes the risk out of the loan by assuring that (typically) 25% of the loan will be paid off. Truth to tell, it’s really not the VA at all but rather Ginnie Mae, the wholly owned department inside the Department of the Treasury. Ginnie Mae stands for Government National Mortgage Association and it does its work for the VA and the FHA both. It is truly the only government guaranty available on the market. Fannie Mae and Freddie Mac are not government guarantees-they are Government Sponsored Enterprises (GSE’s) and there is a big difference-this becomes important for our discussion.

B. Lenders lend the money. These lenders are like American Bank, FSB and others who rely upon the VA Guaranty to make your loan (which is actually a guaranty by Ginnie, right? See above.). Lenders honor the rules of the financial markets, rules that are normally set by treasury auctions (see below) and Fannie Mae and Freddie Mac.

C. Fannie Mae and Freddie Mac are civilian, commercial enterprises that set the rules in more than 80% of all residential mortgages. The reason is not so much their capital and their ability to buy the mortgages from the lenders but because they know the statistical probabilities of the loans being paid off connected to each little nuance of residential mortgages such as size of the loan and value of the house. These two enterprises have determined that $417,000 is the number that draws the line between a conventional mortgage and a jumbo. Jumbos are loans that are bigger than $417,000.

D. There is a big difference between a loan guaranty by the VA and the enthusiasm of lenders to loan for sums higher than the jumbo/conventional line of demarcation or $417,000. You may get your guaranty but you may not get the loan at a conventional rate.

II The VA does not use the term “Jumbo Loan.” It will guaranty loans for sums higher than the Fannie/Freddie conventional loan limit, but they do not use the word “Jumbo. As for the guaranties higher than $417,000, they are sensitive to the location of the property.

III The line of demarcation can change!!! The limit is established by two civilian government sponsored enterprises and since they know the flow of residential mortgage finance better than anyone, they can and do consider changing the limit from time to time. It always pays to double check to see if the conventional loan limit (that’s what this is normally called) has shifted.

IV Rates are different for jumbos. This is not a VA or FHA or Ginnie Mae thing. It’s all about the cost of the money for the lenders as they originate your VA loan. Those rates are set by the market and the market is the pool of money from which the lenders tap. This is where that economic news from the Federal Reserve comes into play. Lenders of all forms must compete for the money they use to loan to companies, government agencies, buyers of cars, . . . and buyers of homes-that would be you. How does the market set the rules for allocating the money? Interest rates. If you want to watch a place that is a good indicator about your mortgage rate, watch the weekly auction for Treasury Bills. Ignore the actual number-it’s too hard to explain. Focus on the changes up or down, size and speed of change. The rate for loans higher than $417,000 is set here and your jumbo will be no different than any other jumbo. Yes, it can be safer because it’s guaranteed by the government. But don’t look for any significant break on your jumbo because you are a veteran. Why? Because you are past the line into the territory of Big Money (I just made up this term) and you are getting the whole loan all at once from one lender. That is risky business. You’re really lucky to get a 100%, no money down loan for a jumbo. Honestly, at this time, they do not exist anywhere else in the market, so count your blessings and close the loan!

And that is the True North in the sometimes fuzzy thinking about VA Jumbos. Carpe Diem!

Caveat: this is an opinion of the author and not to be relied upon as a substitute for any advice offered by your lender who will be the final arbiter of everything discussed here.

Copyright 2009 – Thomas Kerns McKnight, JD, CMB

Author: Thomas McKnight
Article Source: EzineArticles.com
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