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Rising prices, falling rates give boost to jumbo loans

Michael and Thia Philbin, with their children Mikey and Kinley, got a jumbo loan to buy their home in Wayland.

Lane Turner/Globe Staff

Michael and Thia Philbin, with their children Mikey and Kinley, got a jumbo loan to buy their home in Wayland.

The number of jumbo loans used for home purchases has skyrocketed in Massachusetts, as buyers take out bigger mortgages to pay for increasingly expensive homes.

Lenders, from local banks to mortgage giants, say that at least 30 percent of their loans are now jumbos, compared with about 10 percent in recent years, fueled by a market where home prices in some communities have now surged past prerecession highs.

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The big mortgages — those for at least $417,000 in Massachusetts — have doubled since 2009 to 12,616 last year, according to the Warren Group, a Boston-based real-estate research firm.

“Partially, it’s the prices going up,” said Paul Anastos, president of Mortgage Master of Walpole, one of the state’s biggest mortgage companies. “You have more urban living, and urban living is expensive. Even in the suburbs, people are building and buying larger homes.”

Bankers and mortgage specialists also cite the improved economy and easing of credit. Interest rates for jumbo loans, traditionally higher than for conventional loans, are much more attractive. The two types of loans are now on par: 4.47 percent for a 30-year fixed rate jumbo loan, compared to 4.44 percent for a conventional loan, according to the consumer financial tracking website Bankrate.com.

Address: Your guide to buying, selling, living

Michael Philbin, 35, closed on a jumbo loan for a home in Wayland last week. Philbin, a real estate investor, initially planned to build the house and sell it. But during construction, he and his wife grew to love Wayland and swapped their life in Quincy for the big yard and good schools in the suburbs, he said.

The terms for the $612,000 jumbo loan, which he got from Eastern Bank, were also appealing, Philbin said. He took out a five-year adjustable-rate mortgage with an initial interest rate of 2.75 percent.

“For our situation, it worked well,” Philbin said. “Our businesses are growing, and we’re doing well.”

Jumbo loans are generally geared to wealthy buyers, but in Greater Boston, where the median price for a single-family home recently hit a record $532,000, even middle-class families have to rely on them. Since the government-owned mortgage companies Fannie Mae and Freddie Mac don’t back them, jumbo loans come with tougher conditions. In most cases, they not only require borrowers to have higher credit scores, but also to come up with 20 percent down and set aside six months of mortgage payments in a reserve account.

Nate Wolfson, 37, and his wife recently bought a home in Lexington, where the community’s highly regarded school system and proximity to Boston have helped push the median home price to $870,000. Wolfson, a digital marketing executive, thought they found a bargain when they settled on a Cape-style home for about $650,000

A jumbo loan might suggest a “big, fancy house,” said Wolfson said, but in this heated real estate market even the purchase of a relatively modest home can put a buyer in the jumbo territory. They borrowed about $500,000.

“It’s anachronistic, considering the housing prices,” he said.

Cambridge leads the way in regional housing boom

Prior to the financial crisis, jumbo loans were more commonly used in Massachusetts than elsewhere in the country, because of the high cost of real estate. But banks everywhere pulled back on jumbo lending after home values collapsed and concerns grew that borrowers wouldn’t be able to pay back the bank.

The rebound in jumbo loans is largely driven by the same force that is helping to push prices higher: wealthy buyers, who recovered more quickly from the recession than middle-income families, said Amy Tierce, a Needham-based regional vice president for Wintrust Mortgage Corp. of Chicago. These big loan amounts have become so common in the Boston area that Tierce left her longtime job at another mortgage broker in June to join Wintrust, which specializes in jumbo loans.

“Inside the Route 128 marketplace, unless we see something shift radically, that’s jumboland,” she said.

And the trend shows no signs of abating, analysts and lenders said. A year ago, jumbo loans accounted for 15 percent of Leader Bank’s mortgage lending; today they represent more than 30 percent, said Jay Tuli, a bank vice president.

But the surge in jumbo loans is also a sign of a widening income gap that is leaving families with moderate incomes behind, said Barry Bluestone, the director of the Dukakis Center for Urban and Regional Policy. In Boston, rising prices are putting homes out of reach of many middle-class families, meaning that only those with incomes high enough to buy increasingly expensive homes or low enough to qualify for government housing subsidies will be able to live in the city.

“It’s the rich and the poor,” he said, “and nothing in between.”

Related:

Address: Your guide to buying, selling, living

Cambridge leads the way in regional housing boom

Rising prices, tight supply complicate house hunting

Area’s home prices up 9 percent

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.
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