With the median home value in Birmingham at approximately $168,000 and a median household income of $36,000, homes are very affordable in this southern city. Yet despite this relatively low median home value, the luxury home market is doing just fine. There are approximately 1,100 homes listed for sale that falls into the jumbo category in pockets in and around Birmingham. The current conforming loan limit for Birmingham is $424,100. Any loan higher that is considered a jumbo loan and jumbo loans have their own set of qualifying guidelines.
One of the guidelines for jumbo loans is a higher down payment. Current conforming loans ask for at least a 5.0% down payment while most jumbo mortgage programs ask for a down payment of at least 10 or 20%. Let’s look at a home listed in Birmingham for $750,000. With a down payment of 10%, that means a minimum down payment of $75,000. With a 20% down payment, the result is $150,000. If that 20% down payment sounds surprising, several banks will ask for that as a minimum down payment. Also keep in mind this doesn't include the customary closing costs.
However, unlike government-backed and conventional loans underwritten to Fannie Mae and Freddie Mac guidelines, jumbo loan programs are a bit more varied than one might think. While most jumbo loans do ask for at least 20% down, there are other mortgage programs that require much less. Recently new options have emerged that allow qualified buyers to finance up to 95% loan to value - just 5.0% down. Using that same 750K example, 5% down is $37,500.
While real estate is indeed an asset whose value will increase over time it’s also one of the least liquid. With a stock or a mutual fund, it’s easy to liquidate and pull cash out of the fund. With real estate, while you can also access your equity by selling, it’s a much more expensive and lengthy process. That’s why some borrowers prefer to keep their cash in their bank account and put as little down as possible while still obtaining competitive financing.
Such financing is available in what some refer to as a “piggyback” loan where there are two mortgages to finance a single transaction. There are two jumbo piggyback loan programs, an 80-15-5 and 80-10-10. The “80” refers to the first mortgage loan at 80% of the sales price of the home. On a $750,000 transaction, that would mean a first lien at $600,000. With an 80-15-5, the second mortgage amount is 15% of the sales price, or $112,500 and requires a down payment of just $37,500.
Applicants should keep in mind the loan amount limit for the 95 percent jumbo option is $1,500,000. Applicants will also require 700+ credit to be eligible, and acceptable assets reveres and debt to income. See all the requirements at our website listed below.
It used to be that jumbo rates were much higher than those for conforming loan amounts. Yet today while jumbo rates are still higher than conforming they are much closer than they used to be. A quick consultation with a loan officer is all that is needed to lay out all your financing options when buying a luxury home. If you do decide to make a large down payment then all you’re comparing is the rate, fees and service from various mortgage companies. However, if you prefer to preserve your liquid assets as much as possible and leverage the jumbo purchase as much as possible with today’s lower rates, then it makes sense for you to contact a mortgage company and review your various loan options. In today’s current mortgage environment, you have more financing options than you might think.
Buyers will find a list of the most common Jumbo Purchase FAQ's here.
Home buyers that have questions can learn more about all the Jumbo Purchase & Refinance options at www.JumboMortgageSource.com or call 800-962-0677. Proud to serve buyers across the nation including Alabama: Birmingham, Mongomery, Mobile 7 days a week.