How to score a jumbo mortgage with less than 20% down

Looking to finance a big mortgage? Here’s some tips you can take to the bank…

Most jumbo investors still have tight credit guidelines. Jumbo loans are any residential mortgage sizes greater than the county high balance loan limit. In Sonoma County, CA the maximum loan size for a single-family home is $554,300 making anything larger Jumbo. These loans are sold in a smaller secondary pool and as such have tighter credit guidelines making them tougher to come by. Higher credit scores, lower debt to income ratio requirements and larger down payments are all looked at closely.

If you don’t have a lot of equity in the property you’re trying to finance, but you have access to cash, you may have some wiggle room by trying to get your foot in the door with less than 20% down.

Here’s the secret sauce combo: 15% down plus a 700 credit or better equals big savings.

Interest rate- this will be more favorable because more skin in the game results in less risk to the bank compared to 10% percent down. Your bank will reward you with more competitive rates and fees when stacked against a 10% down loan.

Payment will be lower supporting long term affordability. This is brought on by a better interest rate, a lower amount financed and a lower cost of PMI. More cash upfront for a safer manageable payment is what the decision will ultimately come too if you are weighing how much cash vs. financial benefit.

PMI factor associated with your loan will also be lower compared to 10% down resulting in that lower payment. The cost of your private mortgage insurance will be will less pricey with more skin in the game. The adjustments occur at 10% down and again at 15% down. 15% down will give you the lowest cost of PMI given your property type, credit score and loan size.

You get out of PMI faster– this is the number one game changer reason for 15% down. PMI is required for a minimum of two years, after which, you can petition out of the PMI if you feel you have accumulated 20% equity in your property based on appreciation in your area.

This is a petition, not a guarantee. The lender must remove the PMI at 78% of the value at original loan application based on an amortization schedule. This usually occurs at 120 months. If you put down more money upfront your house would only have to gain additional 5% in equity over a two year period of time in order to potentially petition out of PMI faster. Dropping your monthly mortgage insurance means a lower mortgage payment akin to you having bought the home with 20% down. This means a payment savings of several hundred dollars per month. Alternatively, you can always refinance should the lender deny your PMI removal request.

Mortgage tip: While there are loan programs that allow for 90% financing with no mortgage insurance, you will be paying for it in a higher interest-rate, higher payment and higher fees, with no payment reduction option other than refinancing.

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