Jumbo mortgage rates are pretty competitive today and many borrowers financing luxury properties Pittsburgh are seeing if leveraging these low rates makes better sense compared to making a traditional 20 percent down payment. Keeping as much cash as possible working in equities, mutual funds or bonds might be the favored choice instead of tying up liquid assets in real estate.
The jumbo mortgage market is similar to conforming and government-backed programs but sometimes there can be slight differences from one lender to another. Because mortgage companies don’t necessarily have to conform to other lenders jumbo guidelines, they can introduce a jumbo program that few, if any, mortgage lenders. This includes down payment requirements for a jumbo loan. Let's look at the latest jumbo down payment requirements for 2020. Home buyers that have questions can visit www.JumboLoanCenter.com for more information.
First, it's important to note that a mortgage is considered a "Jumbo" if the loan amount exceeds $484,350 This is actually the case for the entire state of PA, expect Pike County where the limit conforming loan limit is set at $726,525. Jumbo loan guidelines are very much like conforming loans and if the mortgage amount exceeds 80 percent loan to value, lenders can require a mortgage insurance policy or "PMI" This policy protects the lender for the difference between the down payment and 80 percent of the sales price should the borrowers ever default.
Most mortgage insurance policies for jumbo purchase require a separate monthly mortgage insurance payment for this coverage, however many lenders today do not accept any down payment less than the traditional 20 percent of the sales price.
On the other hand, there are a handful of jumbo programs that require only 10% or even 5% down and do not require mortgage insurance. The tradeoff for this loan means a slightly higher interest rate compared to a borrower with a 20 percent down payment. The lender is willing to accept higher risk compensated with a little higher rate.
Borrowers can also compare the difference between 10 percent down without mortgage insurance and with mortgage insurance along with financing structured with two loans. Perhaps the most popular of these jumbo mortgages is the 80-10-10 program, where the first loan is at 80 percent of the sales price, the second at 10 percent with the borrower coming in with a 10 percent down payment. When taking a first and a second, the second mortgage subordinates to the first and will carry a slightly higher rate. The advantage of this arrangement can mean an overall lower monthly payment compared to one loan at 90 percent of the value of the property.
How about the 95% financing option? like the 80-10-10 structure, it utilizes both a first and a second mortgage. Keeping the first mortgage at 80 percent of the sales prices avoids mortgage insurance while the second mortgage is at 15 percent of the value using a 5 percent down payment and referred to as an 80-15-5.
Remember, these are the minimum down payment requirements for various jumbo loan programs. Some loan programs will award borrowers with a lower interest rate with more down. For example, homebuyers with a credit score of 750 and a 30 percent down payment can have a better interest rate and lower monthly payments compared to someone with 10 percent down and a 700 credit score.
After deciding how much to put down, the loan officer will help compare different scenarios and discuss the pros and cons of each as well as review potential closing costs including reserve requirements for different loan types. Reserves are represented as the total monthly mortgage payment including principal and interest, taxes and insurance, including mortgage insurance when used. If the total monthly mortgage payment is $6,000 and the loan program asks for 6 months in reserves, that means an additional $36,000 in liquid and semi-liquid funds must be verified in addition to the amounts needed for the down payment and closing costs.
Pennsylvania borrowers can read all the latest credit score and down payment requirements under the Jumbo Purchase Page.
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