In the following lines, you will discover three minimum down payment loan types that exceed the conforming loan limit.
They are:
• Jumbo Loan
• Piggyback Loan
• HELOC
Let’s start with the first one. Those who plan to buy a luxury house or at least a property more expensive than average can opt for jumbo loans. Sounds exotic? Actually, jumbo loans are quite the same as the typical mortgage loans – the main difference being the fact that the amount of the loan goes beyond the conforming loan limit which is established by the Federal Housing Finance Agency (FHFA). I said the main difference because there are more of them, such as different requirements to obtain the loan, lower percentage rates, and some more – we will get to them later.
Since the conforming loan limit set by the FHFA differs from region to region, so does the amount of the loan to be considered as a jumbo mortgage. For those who reside in the contiguous US (with D.C and Puerto Rico included), the conforming loan limits/jumbo loan limits are:
• 1-unit property – $417,000
• 2-unit property – $533,850
• 3-unit property – $645,300
• 4-unit property – $801,950
The US citizens living in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, will have the limits as follows:
• 1-unit property – $625,500
• 2-unit property – $800,775
• 3-unit property – $967,950
• 4-unit property – $1,202,925
Accordingly, the conforming loan is anything below those figures while the jumbo loan is anything above them.
These are the indicative limits that refer to most of the counties within the mentioned regions. However, the more competitive is the market, the higher the limit. For example, in some California regions, the same FHA limits that define the start amount of a jumbo loan are as follows:
• $636,150 – Los Angeles, San Francisco, Contra Costa, Napa, San Benito, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Ventura;
• $612,950 – San Diego
• $575,000 – Monterey
Anything above those figures goes under the jumbo loan procedures.
As you can see, $636,150 is the highest limit, and it refers to 108 counties of the US.
Loan Options: What Do I Need To Become Eligible For A Jumbo Loan?
If you want to get the chance for such a big loan as the jumbo mortgage, you should be ready for the following:
• The down payment should be no less than 20% of the purchase. However, some lenders can go as low as 10% under certain conditions.
We can provide financing up to a purchase price of $2,777,777 with as little as 10% down payment without mortgage insurance on the loan, and can also finance a purchase price of $1,578,947 with 5% down payment using lender paid mortgage insurance. We also have some other loan combinations using HELOC – you will read below.
• Fixed-rate jumbo loans are not that frequent, so you will probably apply for an adjustable-rate loan;
• You would pay each month for the mortgage no more than 38% of the income (before taxes).
• You should have a credit score of no less than 720.
• You should have low debt to income ratio – starting with 43% and below.
• You should record your income.
Down Payment With Jumbos And Piggyback Financing
Now, let me discuss the down payment since the recent trends are slightly different. In the past, jumbo lenders required 20% to 30% of the property’s total price. However, in the past few years, the situation in the real-estate market looks more balanced and the crisis wounds seem to be healed, which is why lenders loosen the requirements. Well, this is where you should take the advantage.
But there is one more approach with down payment as low as 10% – in this case, you will need a piggyback loan. In fact, this approach implies two loans under the 80-10-10 structure, where the first figure refers to the 80% of the purchase price, the second applies to 10% of the second loan – the second mortgage, and the third value points to the down payment itself, which is 10% in our case. Sometimes this financing structure may be 80-15-5 or 80-5-15, but 80-10-10 is the most popular one.
The great thing about the 80-10-10 structure is that you can avoid the mortgage insurance. This suggests that you can save $200 to $300 per month for up to $1 million property.
Is There Something Else For A Luxury Property?
Yes – there is another great way for you to buy a luxury house or get a mortgage loan that exceeds the conforming loan limit. However, at this time you should already have equity in some property, which means the loan is not for you primary house. Remember that second figure of the 80-10-10 structure? This is about the second mortgage, which is also referred to as HELOC – home equity loan of credit because it acts this way. Well, the great thing is that you can get this HELOC out of this context and apply for it as a separate loan type.
HELOC is a particular kind of loan which addresses only home owners or those who have at least a part of the ownership. It acts like a credit card – you can borrow up to the credit limit, pay back a portion or all the debt and then borrow again up to the credit limit. It gives you so much flexibility.
HELOCs are structured into two main parts:
• Draw period – this is when you can borrow and use the money from the balance. The period lasts from 5 to 10 years depending on the lender. You will pay each month the interest alone.
• Repayment period – this is when you have to repay the loan entirely. This period lasts around 20 years, and now you will have to pay the principal plus interest.
The Piggyback Options We Have To Offer
Now that you understand how HELOC does operate, you are fully aware of the 80-10-10 loan (piggyback) components. Piggyback financing structure does a great job at getting rid of mortgage insurance. How is that possible? Well, while most lenders require PMI (private mortgage insurance) for conventional loans with less than 20% down payment, they will ignore this insurance if you apply for the piggyback system since they view it as a 20% down loan (10% of the HELOC plus 10% of your down payment).
We can finance a purchase price up to $1,888,888 with 10% down payment using a HELOC under the piggyback combination. We can also finance a purchase price of $1,171,526 with a minimum of 5% down using a HELOC under an 80-15-5 structure.
You can contact our team for more details!
