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Think you need 20% down for a jumbo loan? Think again

Erik J. Martin
The Mortgage Reports contributor

A jumbo house needs a jumbo mortgage

Got your eye on a bigger, better, more expensive home? You’re likely going to need a bigger mortgage.

That’s where a jumbo loan can come in handy.

Jumbo loans let you buy more than traditional loan limits allow — which is currently $510,400 in most areas.

And thanks to new mortgage programs, you don’t need 20% or 30% down to get a jumbo loan anymore.

In fact, some lenders will let you spend upwards of $2 million, with just 5% or 10% down and no mortgage insurance.

Want to see how much house you could afford today?

Check your eligibility for a low-down-payment jumbo loan here (Jan 18th, 2020)
What is a jumbo loan?

A jumbo mortgage is a “non-conforming loan,” meaning it surpasses the conforming loan dollar limits set in place by Fannie Mae and Freddie Mac. The limits for jumbo loans can vary depending on your location. Many jumbo mortgages require a 20% down payment. But new jumbo loans are being offered with as little as 5% down and no private mortgage insurance (PMI) required.

How to get a jumbo loan with less than 20% down

New 2020 loan limits affect jumbo loans, too

Lysa Catlin is a senior loan consultant for Caliber Home Loans, Inc. She says the Federal Housing Finance Agency just announced new conforming loan limits for jumbo loans.

“The conforming limit is now $510,400. Anything above that amount is considered a jumbo mortgage.”

Note that there are also “high-cost” markets where the non-conforming conventional loan limit is $765,600

  • Most markets: >$510,400 is a jumbo loan
  • High-cost markets: >$765,600 is a jumbo loan

>> Related: Find loan limits in your area here

Keep in mind that the lower limit for jumbo mortgages is the same as the upper limit for conforming loans.

But jumbo mortgages also have caps, which can vary by lender.

Eric Jeanette is president of Dream Home Financing and FHA Lenders. He notes that this conforming loan limit actually can vary, depending on where your home is located.

“Jumbo loan lenders also have loan limits. Some will go as high as $5 million to $10 million,” he says.

Do jumbo loans require mortgage insurance?

Normally, putting down less than 20% requires you to pay for private mortgage insurance (PMI). That’s true for (most) conforming mortgages and jumbo loans alike.

“PMI is an insurance policy that protects the lender from losses in the event that you can’t pay your debt or file for bankruptcy. PMI exists for loans with a loan-to-value greater than 80% due to the increased risk,” says Jeanette.

PMI can be pretty expensive — especially for jumbo loans.

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

20% down isn’t always required. Today, some lenders offer jumbo loans with as little as 5% down and no private mortgage insurance.

But 20% down isn’t always required. In fact, some lenders today are offering special jumbo loan products that require a much smaller down payment and no PMI attached.

Caliber Home Loans is one such lender.

“We offer jumbo mortgages up to $2 million with only 5% down payment required and no PMI. We also offer a jumbo loan up to $3 million with 10% down needed and no PMI,” says Catlin.

Find a low-down-payment jumbo loan today (Jan 18th, 2020)

Jumbo loan rates today

“Currently, 30-year fixed jumbo rates are in the mid-3% range for most well-qualified jumbo borrowers with a good credit score and 20% down payment,” says Catlin.

But jumbo loan rates, like all mortgage rates, depend on many factors.

“These include loan type, loan amount, down payment, credit score, debt-to-income ratio, and reserves left after closing,” Catlin says.

Jumbo mortgage rates are roughly half a percent higher than conventional rates. So for example, if you qualify for 3.5% on a conventional loan, you might qualify for 4% on a jumbo loan.

In general, Jeanette advises that jumbo mortgage rates are roughly a half percent higher than conventional rates.

“That’s true if the borrower has good credit and can fully document his or her income,” he explains.

“But when you start to add in other factors, like poor credit, alternative income documentation, and bankruptcies, the rates will be higher.”

Also, be prepared to possibly pay higher interest rates if you’re not paying for PMI.

“Since you’re putting less than 20% down and not paying mortgage insurance, rates could be higher. That’s because your profile poses more risk due to less collateral,” explains David Yi, president at Providence Mortgage.

Find a low jumbo mortgage rate. Start here (Jan 18th, 2020)

Where to shop for low-down jumbo mortgages

Catlin’s company isn’t alone in its attractive jumbo offerings. Other lenders are beginning to provide these special kinds of mortgages, too.

“You’ll likely have to look beyond your local bank. There are many online lenders who have creative loan programs that local banks simply do not offer,” says Jeanette.

Your local bank likely won’t offer a low-down-payment jumbo loan. Try looking at online lenders and wholesale mortgage brokers instead.

Yi says another way to find a low down payment jumbo loan with no PMI is to look to wholesale mortgage brokers.

“Wholesale mortgage brokers have relationships with many lenders who can offer flexible terms and guidelines. They can also yield the most cost-effective mortgage solutions for the jumbo loan market,” says Yi.

Good candidates for a jumbo loan

If you plan to buy a home that exceeds the conforming loan limit in your area, a jumbo loan makes sense.

Just keep in mind that to qualify and afford the monthly payments on a jumbo loan, you’ll need a healthy income. That’s true even if you’re not making a big down payment.

“We only recommend people take out mortgages they are comfortable making the payment on,” says Catlin.

“We often see people put less money down initially and then pay the mortgage balance down in chunks later. That can be especially smart when they have a home to sell, expect stock to vest, or will be inheriting money.”

Also, says Jeanette, “say interest rates are low and you can invest the down payment money in something else that will earn a higher rate of return. In this case, pursuing a low down payment jumbo loan can make sense.”

Refinancing vs. recasting a jumbo loan

If rates dip lower after you get a jumbo loan, you can always refinance. But lenders make this process harder, with a lot of rules that apply and documentation needed.

The drawback of a refinance is that you reset your loan term to start from scratch — usually 30 years.

If you can make a big deposit on your jumbo mortgage, you might save more money in the long term by recasting than by refinancing.

If you refinance after making three years of payments, that means you will have had a mortgage for 33 years by the time your debt is paid off.

Instead, you can pursue a jumbo mortgage recast.

How recasting a jumbo mortgage works

“Recasting a mortgage means the lender will re-calculate the mortgage and your current rate after a large deposit. This would lower your monthly payments for the remainder of the loan,” says Jeanette.

In other words, you don’t have to start a totally new loan. You don’t have to requalify based on credit. There can be low or no closing costs. And you don’t need to get an appraisal.

You don’t have to requalify based on credit. There can be low or no closing costs. And you don’t need to get an appraisal.

“Recasting a mortgage occurs after a borrower makes a significant contribution to the principal,” says Catlin.

“This is generally defined as $5,000 or more. Most loan programs allow a recast once every 12 months. But there is typically a small fee attached – $150-$250.”

Your next steps

If you have your sights set on a big house with all modern amenities, you might need a jumbo loan to finance it.

And if you live in an expensive area — think NYC, L.A., or Seattle — you might need a jumbo loan regardless of home size.

The good news is, it’s easier to get a jumbo loan now than it has been since the mortgage crisis.

You might be able to buy a home worth half a million or more with just 5% down and no mortgage insurance.

Ready to get started? Explore your loan options today.

Verify your new rate (Jan 18th, 2020)