Jumbo Loans with Less Than 20% Down: How to Make it Happen

a home graphic with gold dollar sign and question mark

Getting a Jumbo Loan Down Payment Under 20%

The prospect of putting a 20% down payment toward even modest home loans can discourage many potential homeowners. Wading deeper into jumbo loan down payment territory can make a 20% down payment seem downright impossible.

Fortunately, getting a jumbo loan down payment of less than 20% is actually very possible. It just requires proper financial planning in advance of your new home purchase. Let’s discuss some of the best steps you can take to get a jumbo loan down payment of less than 20% out of your own pocket….

What is a Jumbo Mortgage?

Just what is a jumbo mortgage anyway? A “jumbo mortgage” is a home loan that exceeds Freddie Mac and Fannie Mae loan limits. Fannie Mae and Freddie Mac are government-backed mortgage organizations. They both serve slightly different, yet generally similar roles revolving around defining and setting standards for the home loan industry in the United States.

Fannie Mae and Freddie Mac provide backing to banks that make home loans meeting their standards. Any bank that chooses to offer clients a jumbo mortgage does so without the financial reassurances of Fannie Mae or Freddie Mac. Because of this, a bank offering a jumbo mortgage option will most likely require increased assurances on the borrower’s part in order to compensate for increased lender risk.

Fannie Mae Loan Limits and Freddie Mac Loan Limits

a home graphic with gold dollar sign and question markTo reduce risk by avoiding over-lending, Freddie Mac and Fannie Mae loan limits stipulate the amount lenders can dole out to customers. It is important to understand specific figures change depending on the county the home purchase takes place in. This means borrowers in some areas can actually get larger government-backed loans than borrowers in other areas.

Some of the factors determining Fannie Mae and Freddie Mac loan limits include average home value and foreclosure rates. The general loan limit for most of the continental United States is $424,100. However, lenders in areas with higher property values, including San Diego County, have the opportunity to borrow more than the general limit.

The Department of Housing and Urban Development has set a limit of $612,950 for a single-family home in San Diego County, California. HUD’s figures also indicate the median home sale price in San Diego county is $533,000. This means many borrowers looking to mortgage a single family home should fall within the Fannie Mae and Freddie Mac limits.

So yes, many borrowers in San Diego County can receive federally covered loans on a single-family home purchase. Some, but not all. Many high end homes require a jumbo mortgage option, which can create some hurdles for potential borrowers.

Low Down Payment for a Jumbo Mortgage: Getting Under 20%

If you are in the market for a luxury home that is priced above the Freddie Mac and Fannie Mae loan limits, it is still possible to get a low down payment for a jumbo mortgage. However, more stringent requirements are in store for you than most standard borrowers face.

For example, many banks will require a smaller debt-to-income ratio. They will also often request as much as 20% out-of-pocket. Nevertheless, it is indeed possible to get a low down payment for a jumbo mortgage with less than 20% down. While nothing is guaranteed, there are a few steps you can take to secure a jumbo loan without a large down payment…

Have an Excellent Credit Score

Perhaps the most important single measure for securing a low down payment for a jumbo mortgage with less than 20% down is an excellent credit score. After all, it is extremely important to be able to show lenders you are a creditworthy borrower who can handle regular payments while keeping your debt under control. Few markers show lenders these traits like the tried-and-trusted credit score. In many cases, you will need a credit score of 700 or higher, which can be achieved (over time) by paying bills before their due dates, having a diverse credit base, and keeping your total debt load to a minimum.

Show Extensive Proof of Assets

If you can’t (or don’t want to) put 20% down, you need to show lenders a deep foundation of assets and/or cash reserves. Most people’s largest non-liquid assets are investments and retirement accounts. Lenders want to know that if an emergency occurs, you will have the financial assets to repay your loan. It is a good idea to bring proof of assets, including investment and retirement accounts or high-value property, to give lenders greater reassurance.

Lower Your Debt-to-Income Ratio

One of the most important metrics for securing loans on any level is your debt-to-income ratio. This is the amount of money you owe in monthly payments compared to the amount of income you generate every month. For jumbo mortgages in general, lenders want to see a low debt-to-income ratio, usually with a limit of around 45% to 50%. However, in order to secure a low down payment on a jumbo mortgage, a ratio closer to 30% (or less) is heavily preferred.

Accept Higher Interest Rates

It is a pretty straightforward rule in the lending industry: The higher the risk, the higher the interest rate. Lenders incur a greater risk on jumbo mortgages with less than 20% down. This means borrowers will likely have to pay a higher interest rate. The higher interest rate can equal tens of thousands of dollars over the lifetime of the mortgage, but you may need to accept a higher interest rate in order to get a low down payment on a jumbo loan.

Consider a Piggyback Mortgage Loan

In some cases, you may be able to acquire a piggyback mortgage loan, which is a small secondary loan that covers your down payment. If the lender is only able to lend 80% of the property value, and you are only able to bring a 10% down payment, a piggyback mortgage loan may be able to cover the remaining difference.

Look Into an Adjustable Rate Mortgage

A final option may be looking into adjustable-rate mortgages, or “ARMs.” These loans have interest rates that can fluctuate throughout the life of the loan, so they can create uncertainty for borrowers. However, the loan usually has a fixed-rate for the first five to seven years, which provides you with some amount of (shorter term) financial predictability. Adjustable-rate mortgage loans are usually best for people planning to move within ten years, or who plan on paying off a mortgage loan faster.

Get the Best Jumbo Loan Rates in California

Although owning a high end home remains a dream of many borrowers, San Diego Purchase Loans has helped many clients make this dream a reality. What is more, we have helped our clients obtain the best jumbo loan rates in California and nationwide in order to purchase these types of homes. It is important to keep in mind that options are always available to borrowers who meet some or all of the criteria we discussed in this article.

We welcome you to contact our dedicated team to learn more about securing the best jumbo loan rates through affordable financing with smaller down payments. Remember, if you can’t bring a large down payment, a high end home can still be a reality. Let the experts at San Diego Purchase Loans help you find the best lending options to meet your needs!

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“Hi Juliann and Chad, I wanted to take a moment and thank you guys for what would have been impossible for us to do without you. We wouldn’t have our keys in hand if it had not been for your help in navigating the financing, and Juliann’s perseverance in getting the rest of the players in the transaction to deliver. Out of everything, our interaction with your office has been a highlight – and your customer service has been beyond everything we’ve experienced in the real estate industry. Is there a way we can provide any reviews, ratings, testimonials, or other statements that can express to your potential future customers how much you guys do to make the customer’s life easy? Please let us know how we can share our great experience with you to the rest of the public. Whether we refinance this under a VA, or get in a bigger/better house in a few years, we’re not going to go anywhere else for financing. We are customers of yours as long as you are in business. Thanks again for getting us in a house!”

As a first time home buyer, I wasn’t sure what to really expect, but Chad and his team made the process very clear and easy. Once the process was over, they didn’t just vanish either. They kept in touch and looked for opportunities that may benefit me. A couple years later, they found me a great refinance opportunity that saved me a lot of money! Once again, the process is long and grueling, but Chad and his team made it as painless as could be. Any barrier that I encountered, they found a quick solution to make it happen. Mortgages are a huge commitment and I wouldn’t pick any other team to help me make the right decisions.”