Jumbo mortgages fill an important gap for buyers purchasing higher-end homes that require loan amounts above the standard conventional mortgage limit. These mortgages exceed the conforming loan limits set by Freddie Mac and Fannie Mae, which vary by state, county or home type. The conforming mortgage loan limit is currently $510,400 for most locations in the U.S. The exception is various high-cost locations in South Florida, California, CO, DC, CT, etc. Some of these high costs locations have conforming loan limits up to $765,600. Please see the complete list of Conforming Loan Limits for single-family homes.
Jumbo loan programs have expanded over the last few years, and as of 2020 qualified buyers have options up to 95% financing. Depending on the property location, 95% financing can be provided by doing a single 95% loan, or a “combo loan” 1st and 2nd mortgage. Both options allow buyers to avoid paying monthly mortgage insurance, commonly referred to as “PMI” Let’s take a detailed look at the newly updated Jumbo financing guide for low down payment options.
Stand Alone 90% & 95%
This process is more streamlined as it’s only one loan being processed. This will reduced closing costs, paperwork and time. However, the interest rates can be higher on the single loan option, it really just depends on a number of variables. The options that make the most financial sense will depend on the home buyer’s qualifying profile, property state, and loan amount.
PiggyBack Combo Loans: 80-10 & 80-15
Probably the most popular option is a conforming loan with a “combo second” mortgage to bridge the gap between the conforming and non-conforming amounts. In some cases, a homebuyer can get a more affordable mortgage payment by taking out two loans simultaneously. One loan up to the maximum conforming limit and a smaller second loan for the remaining balance.
The second piggyback loan may have a higher interest rate and the overall closing costs can be slightly higher since there are two loans to process. However, the benefit is the lower conforming interest rate on the first mortgage. Since the first loan amount is much larger, this structure can be more cost-efficient than a straight single jumbo loan.
One example of a 95% combo loan structure: Ben would like 95% financing on a $650,000 home in Atlanta, Georgia. Ben’s first mortgage would be $510,400 (the max conforming loan limit for his county) The second mortgage would be for $133,150. The remaining 5% would be John’s down payment of $32,500
Basic Jumbo Loan Requirements:
- Jumbo Loan Amount Limits: All 5% down programs are limited to $2,000,000 loan amount. 90% financing is limited to $3,000,000. Home buyers with 20% down payment have options well over $3,000,000, please contact us below for details.
- Credit Requirments: Strong credit is needed to qualify for most 5% and 10% down programs. A minimum 700 or higher credit score for the 5% down payment option. Buyers with a 10% down payment must have a credit score above 660.
MORE: Improving your credit score (even slightly) can have a big impact on your interest rate savings. Many times very simple things like paying down a high balance credit card, etc can increase your credit score. The improvement of just 20 points in credit score could mean a more attractive interest rate tier. The monthly saving could be substantial especially for high balance jumbo loans. Learn more tips on how to improve your credit score.
- Mortgage Payment Reserves: Most conventional and Jumbo loans will require some “payment reserves” or savings leftover after your mortgage has closed. One month of payment reserves should equal one mortgage payment, includes taxes, insurance, and any homeowner’s assessments. Jumbo program reserve requirements may vary from 3 months of reserves to 12 + months of reserves for higher loans over $2mil. Loan amount, credit profile and property states are some of the determining factors on the exact amount needed. Retirement accounts that are not liquid can satisfy this requirement.
- Paperwork & Documentation: Borrowers will need to document all income and assets in order to qualify for the Jumbo programs above. This includes the previous (2) years of tax returns and/or W’2, plus previous (3) months bank statements, retirement statements, etc, to document sufficient assets.
- Loan Terms: The Jumbo programs above are available in a variety of fixed and adjustable-rate terms. Adjustable-rate can offer lower rates for a period of 3, 5, 7, or 10 years but lack the long term security of a fix rate loan.
- Mortgage Insurance: Regardless if you choose a single or combo loan structure, nearly all the Jumbo programs do not require monthly mortgage insurance, or more commonly known as “PMI”
- Home Use: The programs above only apply to primary residence and vacation homes. Financing is available for investor properties but generally requires an addition 15% down payment.
- Home Type: The home type must be a single-family home, townhome or approved condo. Lot loans, acreage, manufactured, or commercial loans are not permitted under this program. Please read the details about special Jumbo construction financing here. This is for buyers that choose to build on their own land and does not include a new construction spec home that is built, financed and sold to you by a new home builder.
Final Program Notes:
- These programs also apply to Rate-term Jumbo refinance options. Cash-out refinance programs are also available to qualified homeowners with equity.
- Eligible military veterans do have high balance VA Jumbo loan options available to them. Please see the details about VA jumbo mortgages here.
- First time home buyers are eligible for the low down payment Jumbo programs.
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