The conforming loan limit was recently raised in Travis County from $453,100 to $484,350 to start the year. Loans that are considered conforming are those underwritten to guidelines issued by Fannie Mae and Freddie Mac and do not exceed loan limits established by both agencies. Loans above the conforming loan limit are referred to as “jumbo” loans and have their own unique standards lenders must follow when approving a home loan in Austin, Texas and throughout Travis County. What sort of jumbo loan options are available in today’s marketplace?
Perhaps the most noticeable difference between a conforming and jumbo loan is the interest rate. Rates for jumbo loans will typically be little higher than those reserved for conforming loans. In addition, jumbo loans can ask for a greater down payment compared to the minimum down payment of 5% with conventional, conforming loan programs.
Most jumbo loans ask for at least a 20% down payment depending on the bank or lender. If you consider a home listed in Austin for $1.5 million, a 20% down payment equals $300,000. There are even jumbo lenders who ask for a down payment of 30% or even more depending on how the loan amount is.
However, there are new special jumbo loan programs in 2019 that do not ask for a 20 or 30% down payment. Some jumbo programs are now available to accept a 10% down payment or even a 5% down if the borrower’s loan amount is below $2.0m. For example, let’s say a home is listed at $1.5 million and the buyers want to make a 10% down payment and not 20%. The lender will approve two loans simultaneously, a first mortgage and a second mortgage. This is commonly known as an 80/10/10 loan structure.
The first mortgage will be issued at 80% of the sales price or in this example $1.2 million. Keeping the loan at or below 80% of the value eliminates the need for hard-to-find mortgage insurance for jumbo loans. The lender also issues a second mortgage at 10% of the sales price, or $150,000 and the buyers come to the closing table with a 10% down payment in addition to the funds needed for closing costs.
Jumbo mortgage lenders refer to this product as an 80-10-10, where the buyers put down 10% of the sales price and the lender issues a mortgage at 80% of the sales price as a first lien and a second lien at 10%. There are also similar products where the buyers put down 5% resulting in an 80-15-5 scenario.
It’s not surprising that the lower the down payment, the higher the interest rates will be but your loan officer can run the numbers for you and help you decide. When buyers make a down payment on a home that amount is their initial equity but is not necessarily very liquid. When a down payment is made the only way to turn that equity into cash is through a sale or an equity loan. This is why many who buy and finance a higher end home in Austin and Travis County often elect to hold onto their liquid assets as much as possible and leverage today’s low mortgage rates with two mortgages loans.
Such a scenario will ask the borrowers to occupy the property being financed. If the buyers want to buy an investment rental home, the 80-15-5 program may not be an option as this is only available for primary or second homes. Minimum credit scores apply as well with lenders asking for a minimum credit score of 700. Learn more about all the Jumbo Purchase guidelines here.
There are more options that you might imagine when seeking jumbo financing and there can be more competitive programs than you might think. If you’re buying a luxury home, you should first talk numbers with an experienced loan officer. We are happy to serve home buyers nationwide including Texas. Contact us 7 days a week at 800-962-0677