Recently a number of realtors and home builders I have been talking with have told me that they did not know there was a such thing as a VA Jumbo Loan. In fact, there may be some loan officers who don't know about it, and tell their borrowers that they have to take a straight jumbo loan if they are borrowing more than the $417k conforming limit. And that, to be frank, costs those borrowers money up front and in the long term.
WHAT'S WRONG WITH A STRAIGHT JUMBO?
Absolutely nothing - if you want to finance more than $417k of the purchase price, and have no VA entitlement, you are going to be taking a stroll down Jumbo Street. Expect to put down at least 20%, up to 30% in distressed markets. And the rate you will pay will likely be between 1% and 1.5% higher than a standard conventional loan rate - today that means between 6% and 6.5%.
HOW DOES THE VA JUMBO LOAN DIFFER?
Let's look first at what the VA does. Essentially, it guarantee's the lender for 25% of the loan amount, to a limit of $417k. So if the lender loans $100k, and has to foreclose, and sells it for $75k, the lender doesn't take a loss. Instead the VA sends the lender $25k. And this is why lenders are willing to provide 100% financing to veterans - the higher risk is balanced out by the VA stopping them getting burned if the loan goes bad.
Now, the VA isn't made of money, and doesn't like having to send out a check for much more than $100,000. So they only guarantee that 25% up to the $417k conforming limit. If a veteran wants to borrow more, they have to put down 25% of whatever they borrow over that limit. Now, this sounds like a lot, but lets look at an example.
Let's say our buyer wants to buy a property for $800,000. With a standard jumbo, he will put down 20% - $160,000 - and perhaps pay 6.25% - about $3950 per month.
With the VA Jumbo, he has to put down 25% of what the VA doesn't guarantee - a down payment of $95,750. And at a rate of say 5.5%, he is paying $3999 per month (a little more because he has a higher loan balance.) Monthly costs are pretty close in this example - but our buyer has an extra $64,000 in the bank when he closes, i.e.. he put down 12% and not 20%. More money at a lower rate. Do you think we have a happy buyer?
Good luck out there everyone. If there is anything I can do to help, or even answer a question - drop me a line. The more knowledge we share as a group, the better service we can deliver to our clients.
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