For 2020 the new base conforming loan limit was increased to $484,350 in New York. Certain "high-cost" counties like Dutchess, Nassau, Kings, Orange, Richmond, Rockland and Suffolk among others have new limits up to $726,525.
Loans that are considered "conforming" are those underwritten by guidelines issued by Fannie Mae and Freddie Mac and do not exceed loan limits established by both agencies. Loans above the conforming loan limit are referred to as “jumbo” loans and have their own unique standards mortgage companies must follow when approving a home loan in New York. What sort of jumbo loan options are available in today’s marketplace?
Perhaps the most noticeable difference between a conforming and jumbo loan is the interest rate and down payment. Rates for jumbo loans tend to be slightly higher when compared to conforming loan. In addition, jumbo loans normally require a greater down payment compared to the average down payment needed for conventional, conforming loan programs. Depending on the bank or lender, many jumbo loans ask for at least a 10 or 20% down payment.
However, there are new jumbo loan programs that permit financing up to 95% loan to value. This is often accomplished by a first and second mortgage combo structure. For example, let’s say a home is listed at $1.5 million and the buyers want to make a 10% down payment and not 20%. The lender will approve two loans simultaneously, a first mortgage and a second mortgage. This is commonly known as an 80/10/10 loan structure.
The first mortgage will be issued at 80% of the sales price or in this example $1.2 million. Keeping the loan at or below 80% of the value eliminates the need for hard-to-find mortgage insurance for jumbo loans. The lender also issues a second mortgage at 10% of the sales price, or $150,000 and the buyers come to the closing table with a 10% down payment in addition to the funds needed for closing costs. Jumbo mortgage lenders refer to this product as an 80-10-10, where the buyers put down 10% of the sales price and the lender issues a mortgage at 80% of the sales price as a first lien and a second lien at 10%. There are also similar products where the buyers put down 5% resulting in an 80-15-5 scenario.
When buyers make a down payment on a home that amount is their initial equity, but is not necessarily very liquid. When a down payment is made the only way to turn that equity into cash is through a sale or an equity loan. This is why many who buy and finance a higher end home in New York often elect to hold onto their liquid assets as much as possible and leverage today’s mortgage rates with two mortgages loans.
Such a scenario will ask the borrowers to occupy the property as a primary home. If the buyers want to purchase a home and use it as a rental, or vacation home, the 80-15-5 program will not be an option as this is only available for primary homes. Minimum credit scores apply as well with lenders asking for a minimum credit score of 700. Learn more about all the loan limits and down payment requirements on the Jumbo Purchase page.
There are more options than you might imagine when seeking jumbo financing and there can be more competitive programs than you might think. If you’re buying a higher end home, you should first talk numbers with an experienced loan officer. Contact us 7 days a week by visiting www.JumboLoanCenter.com