Recent changes in conforming loan limits for 2020 raised the maximum loan cap from $510,400 to $548,250 in New Mexico. That also changed the minimum amount for a jumbo loan. A jumbo loan is one that is greater than the conforming maximum and will also be a bit more difficult to qualify for.
For example, a minimum credit score for a conforming loan in Albuquerque might be 620 but a jumbo minimum at 700 when financing over 90% LTV. Interest rates for jumbo loans can be as much as 0.375%-0.50% higher than its conforming cousin. Most conforming loans are underwritten to standards issued by Fannie Mae and Freddie Mac.
Both Fannie and Freddie establish lending guidelines and if a loan is approved using these standards and is at or below the conforming limit the loan can be sold to Fannie or Freddie. When a bank sells a loan that refreshes the line of credit and allows the bank to make even more loans.
Yet there are fewer jumbo loans made compared to conforming ones and Fannie and Freddie don’t purchase jumbo loans. Instead, individual lenders establish lending guidelines. Other lenders and investors can agree to purchase these jumbo loans which then provide the jumbo lender with more cash to continue operating as a lender. In most cases, jumbo lending guidelines are very similar from one lender to the next.
For instance, in addition to a minimum credit score of 700 a lender can ask for a 20% down payment on a loan amount that exceeds $1 million dollars. That’s a common requirement for a jumbo loan. Yet there are also jumbo loan programs that don’t require a 20% down payment. In fact, there are jumbo loan programs that ask for only a 10% down payment and even 5%. There aren’t as many 5% down jumbo loans available today, but they do exist and certain jumbo lenders specialize in these low down payment options.
A 5% down jumbo program is actually a combination of two mortgages, a first mortgage lien and a second. This structure keeps the first mortgage lien in a first position secured by the property at 80% of the sales price. Most jumbo loans ask the first mortgage be no greater than 80% of the value of the property. This first mortgage is followed by a second lien and is the difference between the 5% down payment and 80% of the sales price and the current market value of the home. Here’s how it works.
Say a homebuyer is under contract for $1 million dollars in Santa Fe – The first mortgage would be at 80% of $1 million, or $800,000. The buyer would make a 5% down payment of $50,000. There would then be a second lien of 15% of the sales price, or $150,000. Such a loan arrangement is referred to by lenders as an 80-15-5 loan, or a “piggyback” mortgage where a second lien piggybacks on the first.
Single 95% Jumbo loans are also available in select states. These single standalone loans, along with the combo options above require NO mortgage insurance (PMI) Buyers often have the choice of fix rate or ARM options. Buyers will find the latest Jumbo loan FAQ’s here.
Some jumbo buyers would prefer to preserve their liquidity and not use it for a down payment. Real estate isn’t the most liquid of assets and pulling out equity in the form of cash requires a home equity loan or home equity line of credit.
Buyers in Albuquerque and Santa Fe can learn more about all the 5% and 10% down Jumbo options by calling Ph: 800-840-6449 or just submit the Quick Call form to speak to a loan specialist now.