Mortgage Daily

Published On: December 15, 2022

Does a Jumbo Loan Require a Sizeable Down Payment?

Have your sights set on a larger, better, and more expensive home? You will likely require a larger mortgage.

This is when a jumbo loan can be helpful.

Jumbo loans enable you to purchase more than normal loan restrictions, which are now $647,200 in most regions.

And owing to new mortgage schemes, a 20% or 30% down payment is no longer required to obtain a jumbo loan.

Some lenders may allow you to spend up to $2 million with a 10% down payment and no mortgage insurance.

Want to know how much house you can afford right now?

What Is a Jumbo Loan?

A jumbo mortgage is a “non-conforming loan,” meaning it exceeds Fannie Mae and Freddie Mac’s conforming loan restrictions.

Since jumbo loans are deemed non-conforming, they are exempt from Fannie and Freddie’s underwriting requirements. Therefore, lenders of jumbo loans can set their standards for applicants.

This implies that minimal credit scores, minimum down payments, maximum debt-to-income ratios (DTI), and other criteria might vary significantly from lender to lender.

  • You’ll likely need a minimum credit score of 700. Some lenders may need 20% down and a credit score of 740, while others may accept down payments as little as 5% or credit scores as low as 680 are acceptable, while those with scores below 700 would likely pay higher loan rates).
  • The required down payment ranges from 5% to 20%. Since mortgage lenders have more freedom to create their underwriting rules, you’ll encounter a range of minimum jumbo loan down payment amounts.
  • The government imposes no property limitations. All properties, including permanent houses, holiday homes, and investment properties, are eligible for financing.
  • Expect a debt-to-income ratio between 38 and 42%. Again, there are few hard and fast regulations for jumbo loans, but a low DTI is essential for qualifying for any loan, be it jumbo, conventional, or otherwise. However, homebuyers with excellent credit and a substantial down payment may find a lender prepared to underwrite a jumbo loan with a larger DTI.
  • To qualify, you may require cash reserves. Some lenders may need cash reserves of up to one year’s worth to qualify. After making the down payment and closing charges, you need twelve mortgage payments in your bank account.

Not only do loan criteria vary per lender, but so do interest rates and fees. Find a lender who will approve you for a jumbo mortgage loan at a competitive rate.

What Is the Down Payment Amount for a Jumbo Loan?

Historically, jumbo loans demanded a 20% or even 30% down payment.

Imagine you are purchasing a $750,000 property. A 20% down payment would leave you with a $150,000 out-of-pocket expense, not including closing charges.

However, today’s homeowners have additional borrowing alternatives.

Some mortgage lenders now offer jumbo loans as low as 5% or 10% down. Others may require 15% to 20%.

It depends on the investor with whom you deal. As stated previously, lenders can establish guidelines for this sort of mortgage.

Low-down-payment jumbo loans can be particularly beneficial for first-time homebuyers in high-priced regions who have not had much time to save.

How Can I Obtain a Jumbo Loan With a 5% Deposit?

Simply by comparison shopping. Inquire multiple mortgage lenders about their minimum down payment requirements for jumbo loans.

Inquire about your credit score and income criteria to determine your eligibility.

President of Dream Home Financing and FHA Lenders, Eric Jeanette, says, “You’ll likely need to go beyond your local bank.” There are several internet lenders with innovative lending products that local banks do not provide.

Wholesale mortgage brokers are another resource for locating low-down-payment jumbo loans.

“Wholesale mortgage brokers have ties with several lenders that may provide flexible terms and regulations. Additionally, they can provide the most economical mortgage solutions for the jumbo loan market, according to the president of Providence Mortgage, David Yi.

When you locate a lender that offers low-down-payment jumbo loans, you may submit a pre-approval application to determine your eligibility.

Then, after you have a signed purchase agreement for the property, your lender can finalize loan approval by verifying the interest rate, loan conditions, and closing fees for your new jumbo loan.

One thing to remember is that online; most lenders need to be more transparent with information concerning their jumbo loans. Therefore, you should only expect to find some of what you require on a lender’s website.

Instead, contact a loan officer or mortgage broker who can provide further information.

What Is the Definition of a Jumbo Loan in 2023?

Caliber Home Loans, Inc.’s senior loan consultant is Lysa Catlin. According to her, the Federal Housing Finance Agency (FHFA) annually publishes new conforming loan restrictions, determining the difference between a conforming loan and a jumbo loan.

“The new conforming loan ceiling is $647,200. Catlin notes that anything exceeding this amount is called a jumbo mortgage.

In specific high-cost locations, conforming loan limitations are a little more lenient. These include places such as Hawaii and Alaska, New York, and Los Angeles, where the median house purchase price tends to be significantly higher than the national average.

In some real estate areas, the maximum price for a single-family home is $970,800.

  • In most markets, loans above $647,200 are categorized as jumbo loans.
  • High-cost markets: loans over $970,800 are categorized as jumbo loans

Remember that the maximum loan amount for conforming loans is the minimum for jumbo loans. However, jumbo mortgage loans have limitations that vary by lender.

According to Jon Meyer, The Mortgage Reports’ loan specialist and qualified MLO, these high-balance conforming loan locations offer the worst interest rates. Therefore, even if you qualify for a conventional loan, you may enquire about a jumbo loan in these locations if you meet jumbo’s eligibility requirements.

Some mortgage providers offer jumbo loans up to $2 or $3 million. Others will contribute up to and beyond $10 to $15 million.

You must be able to make the monthly mortgage payments on a multimillion-dollar loan to be eligible. This is why lenders have such stringent underwriting standards for jumbo loans.

Do Jumbo Loans Require Mortgage Insurance?

Private mortgage insurance is typically required when the down payment is less than 20% (PMI). This is true for the majority of jumbo loans and conforming mortgages.

“Private mortgage insurance (PMI) is an insurance policy that protects the lender if you default on your loan or declare bankruptcy. “Private mortgage insurance exists for loans with a loan-to-value ratio of more than 80% due to the heightened risk,” explains Jeanette.

PMI may be rather costly, particularly for jumbo loans.

Jeanette continues, “For instance, the monthly PMI payment on a $2 million jumbo loan with a 90% loan-to-value ratio and a credit score in the mid-600s would be $1,083.”

However, 20% down is only sometimes necessary. Several lenders provide jumbo loan packages that need a far lower down payment and do not include PMI. Meyer adds, “Some investors will not demand PMI with a 10% down payment or more.”

Caliber Home Loans is one example of such a lender.

We provide jumbo mortgages up to $2 million with 5% down and no PMI. Catlin also offers a jumbo loan of up to $3 million with a 10% down payment and no PMI.

Be aware that you will likely pay a higher interest rate without PMI.

“Your interest rate might be higher because your down payment is less than 20%, and you’re not paying mortgage insurance. That’s because your profile offers higher risk owing to less collateral,” argues Yi.

Today’s Jumbo Loan Rates

You could expect jumbo loan interest rates to be significantly higher than conventional mortgage rates. However, they are typically priced similarly.

The current mortgage rates for purchasing or refilling a jumbo house are low, as are all interest rates.

Remember that, like mortgage rates in general, jumbo loan rates vary on various variables. Cattin states that these factors include loan type, loan size, down payment, credit score, debt-to-income ratio, and reserves remaining after closure.

Jeanette warns that jumbo mortgage rates are about 0.5 percentage points higher than standard mortgage rates.

He continues, “This is true if the borrower has strong credit and can thoroughly substantiate his or her income.” The rates will increase, however, when additional criteria, such as bad credit, alternative income documents, and bankruptcies, are included.

Options for jumbo loans include fixed-rate and adjustable-rate mortgages.

Initially, an adjustable interest rate might save you money on your mortgage payments, but it might be highly hazardous to have a jumbo loan rate and payment that increases over time. Therefore, these loans are typically only advised if you intend to refinance or relocate before the first fixed-rate period expires.

Does a VA Jumbo Loan Exist?

While the VA does not provide a jumbo loan product, unlike other government-backed loans, there are no lending restrictions for VA loans.

Yes, qualifying borrowers may qualify for jumbo loan amounts with no down payment via the Department of Veterans Affairs. Even though the VA may not impose loan limitations, mortgage lenders do.

However, you must have a substantial salary, excellent credit, low DTI ratio, and a hefty down payment to qualify. Learn more about obtaining a VA jumbo loan.

Refinancing of a Jumbo Loan

After obtaining a jumbo loan, if interest rates decrease, you can refinance into a loan with a reduced interest rate and monthly payment. However, qualifying for a jumbo loan refinancing might take a lot of work.

Similar to purchasing a home with a jumbo loan, there will be a greater focus on your credit, income, and financial background. There may also be restrictions on cash-out refinancing.

However, if you qualify for a jumbo mortgage, you’ll likely be eligible for refinancing. Consult with several mortgage companies to determine your best lending choice and rate.

Those Who Are Eligible for a Jumbo Loan

If the purchase price of your new home exceeds the conforming loan restrictions in your location, a jumbo loan may be the best option for you.

You will need a substantial income to qualify for and afford the monthly payments on a jumbo loan. This is true even if your down payment is modest.

Catlin said, “We only propose that customers obtain mortgages for which they can comfortably make the [monthly payment].”

“It’s common for consumers to put less money down initially and then pay off the mortgage in installments over time.” This can be especially prudent for those selling a property, anticipating the vesting of shares, or receiving an inheritance.

Also, according to Jeanette, if interest rates are low, you can invest the down payment funds in something that yields a greater rate of return. In this situation, it makes sense to pursue a jumbo loan with a modest down payment.”

Your Next Steps

You may require a jumbo loan to fund the purchase if you have your heart set on a large home with all the latest amenities.

And if you reside in a costly city, such as New York City, Los Angeles, or Seattle, you may require a jumbo loan regardless of the size of your property.

The good news is that obtaining a jumbo loan is currently more accessible than it has been since the mortgage crisis. With a 5% down payment and no mortgage insurance, you can purchase a property valued at at least $500,000 with no mortgage insurance.

 

 

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