There are three basic types of loan limits for most parts of the country, conforming, high balance, and jumbo. Conforming loans are limited to $647,200 in many parts of the country, Charleston included.
High balance loans are in areas where the cost of real estate is much higher compared to other areas, think California. The high balance loan limit is $970,800, but in most locations like South Carolina, there are just regular conforming and jumbo.
Each year, the Federal Housing Finance Agency reviews the national average value for homes in October and compares that value with the previous year. If there is an increase, the new conforming loan limit for the following year is adjusted upward by the same percentage. If there is a decrease, the loan limits will remain the same.
Jumbo loans in South Carolina generally require a down payment of at least 20 percent with most banks and lenders. For a $750,000 home, 20 percent is $150,000. 25 percent is $187,500. That’s quite a bit of money. By contrast, an FHA loan is just 3.5% of the sales price and conventional mortgages can ask for as little as 3% to 5% down. However, these programs are greatly limited to lower loan amounts.
MORE: See the loan limits map in your area.
The good news is there are new options for Charleston buyers to put down less than 20 percent by using two loans to finance the purchase instead of just one. Sometimes referred to as a “piggyback” combo or an 80-10-10 or 80-15-5, buyers put down 5% to 10% of the sales price and take out a second, subordinated loan for the rest. The benefit to this is it keeps the first mortgage at the 80 percent loan to value mark to avoid paying PMI.
Let’s refer back to the $750,000 purchase price. With an 80-10-10 loan, the buyers make a 10 percent down payment of $75,000 instead of $150,000. They also apply for a second mortgage for $75,000. This means no private mortgage insurance and much less cash to close.
Each month, the borrowers will make two monthly mortgage payments. One to the first lien holder and one to the second. It’s important to remember these are two separate loans so that means two separate applications. That also means you’ll provide copies of your paycheck stubs, W2s and tax returns, bank statements and other documentation for each application.
Buyers can view all the 90% and 95% financing requirements in detail on the Jumbo Purchase page.
There’s certainly a lot to consider when making a purchase that requires jumbo financing. It’s a bigger financial commitment than what many are used to which means more money at the closing table.
Jumbo loans will require better qualifications from the buyer when compared to conventional loans. But the idea that all Jumbo loans require a 20% down payment is false, there are lower down payment solutions. If you’re thinking of financing a jumbo purchase but not ready to part with a 20 percent down payment, contact us to discuss your options.