A jumbo home needs a jumbo mortgage
Do you have a bigger, better, more expensive house in mind? You will likely need a larger mortgage.
This is where a jumbo loan can come in handy.
Jumbo Loans allow you to buy more than traditional credit limits allow – which is currently $ 548,250 in most areas.
And thanks to new mortgage programs, you no longer need 20 or 30 percent to get a jumbo loan.
In fact, some lenders are spending more than $ 2 million with only 5 or 10% less and no mortgage insurance.
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What is a Jumbo Loan?
A jumbo mortgage is a "non-compliant loan" i.e. Comply with credit limits Decorated by Fannie Mae and Freddie Mac.
Because Jumbo Loans are considered non-compliant, they don't need to meet the underwriting standards set by Fannie and Freddie. As a result, jumbo lenders can set their own requirements for borrowers.
This means that minimum credit scores, minimum down payments, maximum debt-to-income ratio (DTI), and other criteria can vary widely depending on the lender.
Some may require a 20 percent down payment and a credit score of 740, while others may allow down payments of 5 percent or FICO scores as low as 680.
Additionally, some lenders may require up to a year of cash in hand to qualify. This means that after you have paid the down payment and closing costs, you will need 12 mortgage payments worth of savings in your bank account.
Home buyers should be careful to shop around for this type of loan.
The credit requirements aren't the only thing that differs depending on the lender; Interest rates and fees can also vary widely. So find a lender who will approve you for a jumbo loan and more.
What is the down payment for a jumbo loan?
In the past, jumbo loans were typically 20 percent or even 30 percent less.
Imagine buying a home worth $ 750,000. A 20 percent down payment would get you $ 150,000 out of pocket – before you add the closing costs.
However, today's homeowners have more options.
Jumbo loans are now available from some mortgage lenders with only 5 or 10 percent discounts. Others may need 15 to 20 percent.
It all depends on the mortgage company you work with. As mentioned earlier, lenders can set their own rules for this type of mortgage.
Low down payment jumbo loans can be especially helpful for first time home buyers who live in high priced markets but haven't had much time to build their savings.
Check Your Jumbo Loan Eligibility (July 3, 2021)
How do I get a jumbo loan with a 5% discount?
Simply by shopping. Check with a few different mortgage lenders and inquire about their minimum down payment for a jumbo loan.
Also, ask about creditworthiness and income requirements to see if you are likely to qualify.
"You probably need to look beyond your local bank," said Eric Jeanette, president of Dream Home Financing and FHA Lenders. "There are many online lenders who have creative loan programs that local banks just don't offer."
Another way to find a low down payment jumbo loan is to contact wholesale mortgage brokers.
“Wholesale mortgage brokers have relationships with many lenders who can offer flexible terms and policies. They can also deliver the most cost effective mortgage solutions to the jumbo loan market, ”said David Yi, President of Providence Mortgage.
When you find a lender that offers jumbo low down payment loans, you can fill out a pre-approval application to verify your eligibility.
Once you've signed a contract to buy the home, your lender can issue a final loan approval that confirms the interest rate, loan terms, and closing cost of your new jumbo loan.
One thing to keep in mind: most lenders are not very accommodating with information about their jumbo loans online. So don't expect to find everything you need on a lender's website.
Instead, contact a loan officer or mortgage broker directly who can provide you with the details.
Check Your Jumbo Loan Eligibility (July 3, 2021)
What is considered a jumbo loan in 2021?
Lysa Catlin is a senior loan advisor at Caliber Home Loans, Inc. She says the Federal Housing Finance Agency (FHFA) is announcing new compliant credit limits each year that will dictate the threshold for a compliant loan versus a jumbo loan.
“The compliant limit is now $ 548,250. Anything beyond that counts as a jumbo mortgage, ”explains Catlin.
Note that there are some high-cost areas where credit limit compliance is a little more generous.
In some real estate markets, the limit for a single family home is up to $ 822,375.
Most Markets: Loan amounts over $ 548,250 are considered jumbo loansHigh price markets: Loan amounts over $ 822,375 are considered jumbo loans
Note that the upper limit for compliant loans is the lower limit for jumbo loans.
But jumbo mortgages also have upper limits that can vary depending on the lender.
Some mortgage lenders will raise up to $ 2 or $ 3 million on a jumbo loan. Others will lend up to $ 10 to 15 million and more.
Of course, you must be able to afford the monthly mortgage payments on a million dollar loan to qualify. And that's why lenders have such strict underwriting criteria for jumbo loans.
Does Jumbo Loans Require Mortgage Insurance?
Typically, if you pay less than 20% down payment, you will have to pay for private mortgage insurance (PMI). That goes for most jumbo loans as well as compliant mortgages.
“PMI is an insurance policy that protects the lender from loss in the event that you fail to pay your debt or file for bankruptcy. PMI exists because of the increased risk for loans with a loan-to-value of more than 80%, ”says Jeanette
PMI can be quite expensive – especially with jumbo loans.
"For example, the monthly PMI payment for a $ 2 million jumbo loan with a 90% Lending Ratio and mid-600s credit would be $ 1,083," added Jeanette.
But 20% less is not always necessary. In fact, some lenders today offer special jumbo loan products that require a much lower down payment and no PMI.
Caliber Home Loans is one such lender.
“We offer jumbo mortgages up to $ 2 million with just a 5% down payment and no PMI. We also offer a jumbo loan of up to $ 3 million with a 10% reduction and no PMI, ”says Catlin.
Note that if you are not paying for PMI, you will likely pay a higher interest rate.
“Since you are saving less than 20% and not paying for mortgage insurance, the prices could be higher. That's because your profile is at higher risk due to less collateral, ”explains Yi.
Jumbo Lending Rates Today
You might think that the jumbo loan interest rates are much higher than the corresponding mortgage rates. In fact, however, they are often similarly expensive.
Today, like all interest rates, mortgage rates on a jumbo home purchase or refinance are low.
Remember that jumbo loan interest rates, like all mortgage rates, depend on many factors. "This includes loan type, loan amount, down payment, creditworthiness, debt-to-income ratio, and reserves remaining after closing," says Catlin.
In general, Jeanette advises that jumbo mortgage rates be about half a percent higher than traditional rates.
"That applies if the borrower has a good credit rating and can document his income seamlessly," he explains.
"But if you add other factors like bad credit, alternative income statements and bankruptcies, the rates will be higher."
Jumbo loans include a fixed-rate or adjustable-rate mortgage.
An adjustable rate can help you save money on your mortgage payments initially, but having a rising jumbo loan rate and payment later can be very risky. Therefore, these loans are generally not recommended unless you plan to refinance or move house before the initial rate lock period ends.
Confirm your new plan (July 3, 2021)
Refinancing of Jumbo Loans
If interest rates go down after taking out a jumbo loan, you may be able to refinance at a lower interest rate and a monthly payment. However, qualifying for jumbo loan refinance can be tricky.
Just like buying a home with a jumbo loan, your creditworthiness, income, and financial history will all be subject to more scrutiny. And there may be restrictions on refinancing for withdrawals.
However, if you've qualified to buy a jumbo home, there's a good chance you can get refinance. Check with some lenders to find the best loan option and interest rate for you.
Good candidates for a jumbo loan
If the purchase price of your new home exceeds the approved credit limit in your area, a jumbo loan may be your best option.
Just remember that you need a healthy income to qualify and make the monthly payments on a jumbo loan. This also applies if you do not pay a large deposit.
"We only recommend people take out mortgages they are comfortable with (monthly payment)," says Catlin.
“We often see people investing less money in the beginning and paying off the mortgage balance in pieces later. This can be especially smart if you have to sell a house, distribute shares, or inherit money. "
Also, says Jeanette, “Are you saying that the interest rates are low and that you can invest the down payment in something else that will bring a higher return. In this case, it can make sense to take out a jumbo loan with a low down payment. "
Your next steps
When you have your sights on a large home with all the modern conveniences, you may need a jumbo loan for financing.
And if you live in an expensive area – think NYC, L.A., or Seattle – you might need a jumbo loan no matter the size of the house.
The good news is that getting a jumbo loan is easier now than it has been since the mortgage crisis. You could potentially buy a home worth half a million or more with just a 5% discount and no mortgage insurance.
Ready to start? Explore your loan options today.
Confirm your new plan (July 3, 2021)