The average rate for a jumbo mortgage loan has climbed to 7.04%, which is the country’s highest in at least 12 years.
Nonconforming loans are those that exceed limits for mortgages backed by federal companies Fannie Mae and Freddie Mac. In the D.C. metro area and other high-cost areas, that cutoff is $1.089 million.
Rising rates on nonconforming loans have slowed demand for them. That is what jumbo loan lenders want right now.
“Between tightening credit conditions that they are imposing in general, they are also increasing rates to try to slow down some of the jumbo lending that they are doing,” said Joel Kan, deputy chief economist at the Mortgage Bankers Association in D.C.
Lenders in the nonconforming loan space tend to value those borrowers, who have lower risk profiles. But they are underwriting fewer of those loans right now, in part because banks have less money to lend.
“They have been losing some of their deposits to lots of competing investment vehicles out there for borrowers,” Kan said. “So that is one thing that is driving it.”
The D.C. metro area ranks No. 8 in the nation for the share of homes valued at $1 million or more. That does not necessarily mean there are buyers for seven-figure homes that need a nonconforming mortgage.
“More than likely, they are going to be selling another home to purchase a new home, so they are going to be able to come in with the proceeds from the last home to put down as a down payment or at least a good amount of their down payment,” Kan said. “It is a very different story than comparing it to a first-time homebuyer who is entering the market without another house to sell.”
The Federal Housing Finance Agency sets conforming loan limits each November based on the change in home values throughout the year. It was lifted to $726,200 for 2023, though loan limits are also adjusted for areas where home values are significantly higher than the national average, including D.C. and most surrounding counties.
This year’s limit of $1,089,300 is $118,500 higher than it was in 2022.
