This HousingWire article discusses how dropping mortgage rates have narrowed the spread between conforming and jumbo loans.

Conforming loans are those loans which conform to the guidelines set forth by government-sponsored enterprises or GSEs, such as Fannie Mae and Freddie Mac. These loans are typically seen with loan amounts of $484,350 or lower and applicants must meet certain qualifications related to their income and credit history.

Jumbo loans, on the other hand, are those that exceed Fannie Mae and Freddie Mac’s loan limits. They often require a larger down payment and often come with higher interest rates than conforming loans since they typically involve greater risk.

The recent decline in mortgage rates has resulted in more borrowers choosing jumbo loans over conforming loans, as the interest rate difference between the two types of home loans has been closing. This is evidenced by the Mortgage Bankers Association, which found that the jumbo 30-year fixed rate mortgage, which had a 3% spread over the conforming loan rate, has dropped to 0.5%. This is lower than the 1% spread a year ago.

The narrowing spread between conforming and jumbo loans has been beneficial for borrowers who previously weren’t able to qualify for jumbo loans due to the risk associated with it or for those who weren’t financially capable of paying the higher interest rate. Borrowers are now exploring jumbo loans to take advantage of the lower interest rates compared to conforming loans. This trend of favoring jumbo loans has been increasing in recent months, resulting in more flexibility in jumbo loan pricing.

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