Jumbo Loan Alternatives


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In my previous blog post, I reviewed recent home price increases and how they can lead to jumbo loans.  We also covered how jumbo loans typically have higher interest rates and down payment requirements as compared to conventional loans.

So what do you do if you need to borrow more than the $417,000 conventional loan limit and you don’t have enough cash to make the 20% down payment required for a jumbo loan?  Under certain circumstances, you can obtain a conventional first mortgage of up to $417,000 and then acquire a second mortgage for the remaining balance.  The second mortgage will have a higher interest rate than the first loan, but you may pay less in interest as compared to a jumbo loan.

Dunwoody Mortgage Services will only provide the first mortgage, but we have lending partners who work with us to deliver this type of secondary financing.  One key criterion is that the borrower must have an excellent credit score.  For example, one of our partner lenders can allow total liens (first plus second mortgage) of up to $750,000 when the borrower has a minimum 740 credit score.  This lender can allow total liens of up to about $917,000 when the borrower has a minimum 760 credit score.  In each case, the borrower must make a 10% down payment – less than the 20% down payment required for a jumbo loan.  But if your credit score is less than 740, you will not qualify.

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Clear as muddy water?  Here is an example to better explain.  Let’s assume (1) you have a 775 credit score, (2) you want to buy a house with a price of $835,000, and (3) you have $85,000 of available cash for a down payment.  So you must borrow $750,000 to buy the house.  To get a jumbo loan, you would have to have $167,000 in cash for the down payment.  And your interest rate (on the day I’m writing this) on your jumbo loan would be about ½ a point higher than a conventional loan rate.  But with only $85,000 available to you, the jumbo loan just won’t work.

But with the second loan strategy, you might be able to make an $85,000 down payment, obtain a first mortgage of $417,000 and a second mortgage of $333,000, bringing your total amount borrowed to $750,000.  Your interest rate (today) on the first mortgage would be about ½ a point lower than a jumbo rate, and you may be able to get a rate on the second loan that is comparable to the jumbo loan rate.

If you want to buy a more expensive home and you need to explore your financing options, give me a call at 770-634-0992.  Comparing different financing scenarios is just a part of the outstanding service we deliver to our customers every day.  I look forward to talking with you.



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