Home loan Interest rates have remained near record low levels for a while now and jumbo rates have continued the same trend. This means borrowers financing a jumbo home purchase in Boise, Idaho can leverage their purchases and holding onto their cash instead of making a large down payment. In the years past, applicants making a jumbo purchase would make the largest down payment possible due to the higher rates. However, with the current rate environment today, more buyers are deciding to keep their money in the bank and not using funds for a larger down payment.
Keep in mind that removing cash from saving to use as a down payment should be carefully considered as funds used for a down payment are not considered liquid once made. Jumbo financing can be obtained with as little as 5% down for qualified home buyers and does not require mortgage insurance. Below we will review the most common 90% and 95% jumbo loan structures available today.
Combo piggyback loan structure, 95% loan to value: This is a common way for home buyers to avoid paying PMI mortgage insurance costs. For example, using combo loan on a sales price of $600,000 the first mortgage would be at $480,000. The second mortgage would be at $90,000 and a down payment (5%) of $30,000.
Typical terms for the 5% down combo loans require a minimum credit score of 700 with 3 months of reserves. Reserves are the total monthly mortgage payments including principal and interest, property taxes and insurance. Lenders may also limit the first mortgage and for those that do, the maximum amount total loan amount on the 95% loan is $1.45 million, although these guidelines can vary slightly from lender or bank. All of the 5% down payment options are exclusively for owner occupied primary homes only.
A similar loan structure can also be used putting 10 percent down and still keeping the first mortgage at 80 percent of the sales price avoiding mortgage insurance and a second lien in the amount of 10 percent of the sales price, referred to by lenders as an 80-10-10. With a sales price of $900,000, the first loan would be $720,000 and the second at $90,000 using a down payment of $90,000.
What are the differences between these different structures? Obviously, the biggest difference is the amount of the down payment but there are others as well. Anytime there is a lower down payment, qualifying guidelines can stiffen and when they do lenders offset the additional risk with a slightly higher down payment. A buyer in Boise with a 30 percent down payment and a 750 credit score will have a lower rate than someone with 10 percent down and a 680 credit score. Additionally, second mortgage rates will vary based on the initial down payment by the borrowers.
For instance, a second lien mortgage rate when a buyer has 10% down payment will be lower than someone with a 5% percent down. It might seem a bit confusing at first but the rates are tied to risk. Lower down payment and lower credit scores mean a higher risk for lenders and banks. Higher risk always means slightly higher interest rates. A trained loan specialist can provide you with different scenarios based on how much you decide to put down and explain the advantages and disadvantages of each. Don’t forget to also inquire about single standalone 5% down Jumbo loans with no mortgage insurance.
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