5% Down Jumbo Loan
If you are buying an expensive home that is over the conforming loan limit, a 5% down jumbo loan option may be available to you.
We have experienced a significant increase in home values over the past few years. The increase has pushed home prices into the jumbo loan range where the small down payment options such as FHA typically do not apply.
Most lenders are requiring a larger down payment for jumbo loans which will make it difficult for some home buyers to qualify. Below are some options to consider if you really need a 5% down jumbo loan.
What is a Jumbo Loan?
A jumbo loan is a mortgage that exceeds the maximum conforming loan amount of $647,200. The conforming loan limit is set by the FHFA at the end of November for the following year.
If you are buying a home just over the conforming loan limit, you should consider waiting until the new limits are announced because the purchase price may fall within the new limits.
5% Down Jumbo Loan Options
There are a few options to purchase a home using a jumbo loan with 5% down, or a combination of products to achieve the same 95% loan to value ratio.
It is important to understand that the availability of these products is cyclical. Lenders offer solutions and then remove them when the market is unstable or if they do not have investors to fund the loans.
The sweet spot for financing a home purchase with a low down payment jumbo loan is between the conforming loan limit and $1 million. If you are purchasing a multi million dollar luxury home, there are fewer options for a small down payment.
Single Jumbo Loan with 5% down
A single jumbo loan with 5% down is offered by just a few lenders and availability is based upon market conditions. There would be no PMI requirement, rates will be higher, and you will need to fully document your income.
In some instances, this loan may be a 5 year adjustable rate mortgage versus a 30 year fixed.
Conforming HELOC Combination
Another way to get a 5% down jumbo loan effect is to combine a conforming loan plus a HELOC for a CLTV (combined loan to value ratio) of 95%. Your lender will provide you with a first loan equal to the maximum conforming loan amount. Then, a home equity line of credit or home equity loan for the balance of the loan.
The HELOC is going to be an adjustable rate but doing this will enable you to pay down the HELOC faster.
High Cost FHA Jumbo Loan
Many home shoppers believe they need a jumbo loan but do not realize they live in a high cost area. In these locations, the FHA loan limit is extremely high in the million dollar range. This will enable you to purchase a home using what really is an FHA jumbo loan with only a 3.5% down payment.
To qualify, you will need to fully document your income, have a two year work history and provide pay stubs and W2s.
Qualifying for a 5% Down Jumbo Loan
You can expect the following as a requirement or feature for a 5% down jumbo loan:
Full Documentation – This loan option will require borrowers to qualify by fully documenting their income and providing tax returns.
Reserve requirements – There will be reserve requirements that each lender will set and will vary by lender. It is safe to assume you will need at least 6 months of payment reserves.
Credit Score Requirement – Lenders who offer a 5% down jumbo loan will likely require credit scores of at least 680 or more.
Debt to Income Ratio – The debt to income ratios allowed will be capped at about 43%. There are high DTI lenders who can help with your mortgage, but the down payment requirement will be higher.
No PMI – The loan options available will not require PMI which is another benefit.
If you are trying to purchase an expensive home with a 5% down jumbo loan, then complete this short form and someone will call to discuss your options.
95 Jumbo Loan No PMI
If you are looking for a 95 LTV jumbo loan with no PMI, you should consider a non-QM loan. With these mortgages, there is no PMI but finding a lender willing to allow just 5% down is the challenge. Keep in mind, the rate is often higher for these types of loans which may also offset the PMI.
FHA loans will allow for the small down payment but PMI is required. In fact, you will have to keep it in place for the life of the loan.