Loans higher than the conforming loan amount of $484,350 are considered jumbo loans. These loans typically sit on a lender’s own books and lenders have their own guidelines for them. Among those guidelines are high down payment requirements. Today, however, many lenders allow down payments as low as 5% even on a jumbo loan.
The increase in the number of jumbo mortgages with less than 30% down on the home has increased in recent years. As the housing market gets more competitive, lenders have to get creative in the programs they offer. A part of this offering is now jumbo mortgages with as little as 5% down.
Keep reading to learn how you can make this happen.
What is a Jumbo Loan?
As we stated above, a jumbo loan exceeds the conforming loan amount allowed by Fannie Mae or Freddie Mac. Jumbo loans have riskier tendencies because of the higher loan amount. Fannie Mae and Freddie Mac buy conforming loans from lenders. This gives lenders more liquidity to write more loans. This isn’t the case with a jumbo loan. Instead, the loan sits on the lender’s books, decreasing its liquidity.
Jumbo loans have similar characteristics of any other loan, though:
- Fixed or adjustable interest rates
- Varying loan terms
- Varying down payment requirements
The Typical Required Down Payment for a Jumbo Loan
Not too long ago, borrowers needed between 20 and 30 percent down on a home if they needed a jumbo mortgage. On a $500,000 loan, that means a down payment of $100,000 to $150,000. That’s not an easy task for most borrowers.
Today, many lenders are loosening the guidelines on the down payment, though. Many lenders offer jumbo loans with down payments as low as 5% or 10%, even on a jumbo mortgage. In order to qualify for a low down payment, though, borrowers have to meet strict qualifying requirements.
Qualifying for a Jumbo Loan With a 5% Down Payment
Jumbo loans have strict underwriting requirements whether you put 5% or 40% down on the home. Lenders take a large risk, so they need to know that you aren’t a high risk of default. If you put down 5% though, expect the requirements to be trickier:
- A minimum credit score of 700 or higher
- Debt-to-income ratio maximum of 45%
- At least 6 months of cash reserves on hand
- Proof of your income and employment (W-2s, tax returns, and verification of employment)
Keep in mind that each lender can create its own guidelines. For example, one lender may allow a 680 credit score while another requires a 750 credit score. The same is true for the DTI and cash reserve requirement. Lenders decide what they are comfortable with and what level of risk they want to take.
Will you Pay PMI on a Jumbo Loan With a 5% Down Payment?
Unlike conventional loans (Fannie Mae/Freddie Mac loans), you don’t have to pay Private Mortgage Insurance with less than 20% down on the home. Most lenders allow you to borrow as much as 95% of a high priced home and not pay mortgage insurance.
This can help make jumbo mortgage payments more affordable. Jumbo mortgages typically have higher interest rates in order to make up for the risk they pose. The higher loan amount and higher interest rate can create quite a high mortgage payment.
For example, a $500,000 loan at 5% for 30 years has a monthly payment of $2,684 and that’s just the principal and interest. This is why lenders are so choosy about who they give jumbo loans too. You need to have your income, assets, employment, and credit in line before applying for this type of loan.
Jumbo loans are a great way to buy that luxury home you’ve always wanted. The qualifying requirements are generally stricter than all other loan programs, though. Take your time preparing your qualifications to ensure that you get the approval you desire.Click to See the Latest Mortgage Rates»