In many parts of DC, the thought of getting a jumbo loan is almost automatic as home values in certain pockets are much higher compared to other parts of the country. Currently, the conforming loan limit, those issued using guidelines established by Fannie Mae and Freddie Mac is $484,350 for standard locations across the U.S. Locations that are considered "high cost" like the District of Columbia and surrounding suburbs have conventional loan limits up to $726,525. Anything above that means a jumbo loan, often with slightly more restrictive approval guidelines. There are fewer jumbo lenders compared to lenders who offer conventional or government-backed loans. Jumbo guidelines can require a greater down payment and credit scores compared to other mortgage options.
Most jumbo loan parameters ask for at least a 20 percent down payment and the interest rates on fixed rate programs may be a little higher than a conforming loan amount. Many jumbo lenders also offer a variety of hybrid loans where the interest rate is fixed for an initial period, say three or five years, and then turning into a loan that can adjust annually. But it’s the 20 percent down payment that is often the biggest hurdle.
Real estate is not the most liquid of assets so when a down payment is made, it’s difficult to recover without selling the property or obtaining a home equity loan. Sometimes jumbo buyers have more than enough for a down payment and closing costs but would rather have their money working elsewhere instead of being locked up in real estate. For either those who are saving for a 20 percent down payment or simply want to put down as little as possible, there is a special loan program that requires just a 10 percent down payment. The added bonus is there is no private mortgage insurance needed.
For conventional loans, either confirming or jumbo, traditionally when the first mortgage is over 80 percent of the sales price, an additional private mortgage insurance premium must be purchased to protect the lender from the amount the buyers put down and 20 percent of the sales price.
However, there are two programs that will finance up to 90 percent of the sales price of a home. The first jumbo loan program with no PMI needs only a 10 percent down payment and finances the remaining 90 percent with one mortgage. For example, a home has a list price of $2M. The sellers accept the full price offer and the buyers make a 10 percent down payment of $200,000, borrowing $1.8M and there is no additional private mortgage insurance premium whatsoever.
In addition, this program is a bit easier to qualify for as it relates to credit scores. Many jumbo loan programs ask for at least a credit score of 700 while this loan only asks for a 680 score. There is a maximum loan amount of $2.5M with a $2.78M sales price. The loan program does ask for a fully documented loan with tax returns, bank statements and such but these are common requirements for most any jumbo loan. This 90% financing option with no PMI loan is reserved for owner-occupied property only and cannot be used to finance a vacation or second home or a rental property. The 10% down option is also limited to loan amount below $3,000,000. The program does require a minimum of 6-12 months’ of payment reserves after down payment and closing costs. The exact amount will depend on the down payment, loan amount and credit. Reserves requirements can be satisfied with non-liquid retirement accounts like 401K, etc.
Another alternative with a 10 percent down jumbo purchase without PMI is a combination of a first and a second mortgage, commonly referred to as an 80-10-10 loan with the first mortgage at 80 percent of the sales price and a second lien at 10 percent. Keeping the first mortgage at 80 percent means there is no PMI requirement for the jumbo purchase. Please visit the Jumbo Purchase page to learn more about this, and other attractive programs that permit 95% Jumbo financing up to $2.0mil for qualified home buyers.
These programs are available for both purchase and rate-term refinance transactions nationwide. Happy to serve Virginia and Maryland: Arlington, Alexandria, Bethesda, Frederick, Baltimore, Gaithersburg, Reston, Rockville
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