Here is something that really surprised me…
We have seen a tremendous upswing in the number of buyers asking about low-down-payment (5% to 10%) JUMBO financing.
It is so surprising because of how well the stock market is doing (so you’d expect to see buyers with ample down payment funds) and because of how well many of our borrowers are doing in general.
I suspect though that it is a result of home prices shooting up so much in some areas that conforming (Fannie Mae and Freddie Mac) financing is not available for younger buyers with ample income but not a lot of savings yet.
This of course is a huge boon for us, as low-down payment jumbo is where mortgage banks tend to be much more competitive than commercial banks.
(As a quick aside, here is the blog I wrote about the different channels for mortgage loans: The 3 Primary Mortgage Lending Channels: Banks, Mortgage Banks & Brokers)
5% Down Jumbo Financing
Our 5% down jumbo financing is a 1st and 2nd mortgage combination loan – where the first mortgage is up to (1) an 80% loan-to-value ratio; and/or (2) up to the maximum conforming loan limit for the county in which the property is located.
The 1st mortgage is a standard conforming loan, and the 2nd mortgage is a Home Equity Line of Credit up to $250,000.
So, with 5% jumbo financing, the max purchase is constrained by the loan amounts.
For all of Texas and most of Florida, for example, the maximum purchase price for 5% down financing will be about $1,070,000. $766,550 (the conforming loan limit in those states) is the maximum first mortgage and $250,000 is the maximum 2nd mortgage – allowing for total financing of $1,016,550. So, with a 5% down payment, the maximum purchase price with that financing would be $1,070,000 (buyers can go higher of course, but they’d just have to put down more than 5% to ensure they don’t exceed the combined loan limit).
For Coastal California and other “high cost” areas for example, the maximum purchase price for 5% down financing will be about $1,475,000. $1,149,550 (the high costs conforming loan limit) is the maximum first mortgage and $250,000 is the maximum 2nd mortgage – allowing for total financing of $1,399,825. So, with a 5% down payment, the maximum purchase price with that financing would be $1,475,000 (buyers can go higher of course, but they’d just have to put down more than 5% to ensure they don’t exceed the combined loan limit).
What makes this financing so appealing over and above the loan down payment is the low rates and flexible credit standards. Borrowers can have credit scores as low as 680, and the rate for the 2nd mortgage is as low as Prime+1% (very low for 95%).
10% Down Jumbo Financing
We have two options for 10% down jumbo financing: (1) 1st mortgage/2nd mortgage combination financing; and (2) a single loan to 90% loan-to-value.
The combination loan is very similar to what I set out above, but the maximum loan amount for the 2nd mortgage is $500,000 with 10% down (as opposed to $250,000 with 5% down). This caps the maximum purchase price for the 10% down combo financing at about $1,407,000 in low-cost states like Texas and Florida. And, it caps the maximum purchase price for combo financing at about $1,835,000 in high-cost areas.
The single mortgage option goes all the way to $3 million, allowing for much larger purchase prices. What makes this loan particularly appealing is the fact that the investor that buys the loans from us is desperately trying to get more volume/market share – so the rates are surprisingly competitive – and there is NO PMI!!
