Financing a luxury home in Tampa, Orlando, Miami or Jacksonville usually meant coming up with a relatively large down payment. Some buyers prefer not to withdraw such a large amount from their investment portfolio and tie up those funds in a real estate transaction.
In Florida, mortgage loans that are greater than $647,200 are called “jumbo” loans and historically have carried greater down payment requirements when compared to smaller conforming loans. Some southern locations like the Keys – Monroe County still permit high conforming loan limits up to $710,700.
Financing a luxury home in Florida in many cases always requires a down payment of 10-20%. For example, consider a sales price of $1 million. The minimum down payment would then be $100,000. For bank and lenders that ask for a minimum of 20 percent down, that equates to $200,000. That’s a lot of money pulled out of an investment portfolio. Once a down payment is made, that equity is difficult to get to without getting a higher rate home equity line of credit, or even selling the home outright.
95% Jumbo Loan Structures:
Today there are some new options that allow jumbo financing up to 95%. The most common 5% down loan program utilizes a combination of two loans. The goal of this structure is to keep the cash to close as low as possible and maintain a buyer’s liquidity. The structure is commonly referred to as a “piggyback” loan because a second mortgage piggybacks on the first.
Let’s look at an example financing a home in Tampa. Let’s look at a home listed at $1.5 million. With a down payment of just 10 percent of the sales price, the buyers come to the closing with a down payment of $150,000, much lower than the 20 or 25 percent some banks require. The first mortgage would be at 80 percent of the sales price and the second loan at 10 percent. Lenders commonly refer to such an arrangement as an “80-10-10.”
With two loans, the interest rate on the second mortgage typically slightly higher than the rate on the first. Lenders offset the additional risk by taking a subordinate position behind the first mortgage with a higher rate. Another option is a piggyback arrangement with just a 5 percent down payment. This would result in an 80-15-5 with the first lien at 80 percent of the sales price, the second at 15 percent and a down payment of just 5 percent. Interest rates on the first mortgage in this scenario will typically be a bit higher compared to a purchase with 10 percent.
In many cases, approved homebuyers will also have the choice of one single loan up to 90% or 95% without mortgage insurance. What option makes the most sense for you will depend on a variety of factors to be reviewed during the initial loan consultation. Buyers can read all the latest Jumbo purchase requirements on the website. On the website, you will find all the credit score requirements and down payment requirements based on the loan amount.
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