You never hear anyone say “Give it 95%!,” do you? And, curiously, when it comes to getting a jumbo mortgage, that still holds true — the vast majority of home buyers still think it takes a 20% down payment to enter the market. As of 2019, there are 34 metropolitan statistical areas (MSAs) in California that have a maximum conforming loan limit of $484,350. Another handful of counties can only get to a jumbo-conforming limit of around $550,000. So what do these homebuyers do if they have a maximum of a 5% down payment yet need to exceed the conforming or FHA loan limits? Are they shut out or can they actually buy a home with a jumbo mortgage? The good news for them is that we will continue to lend up to $650,000 with as little as 5% down (for a maximum purchase price of approximately $685,000) and we’ll pick up where their county’s conforming loan limits may leave off. And, in many cases, we can make these 95% loans without PMI, or private mortgage insurance. Using our LPMI (lender paid mortgage insurance) program, we can go to a loan amount of $850K with just 5% down, giving these buyers the reach up to a purchase price of almost $900K. Let’s dive 100% in and look at the key features of our 5% down jumbo program.
There are a few key distinctions between a jumbo and conforming loan and it’s important to understand these if you are going to purchase a property in a higher price range. All of these aspects can be sorted out at the time you get a pre-approval from us, and this process does not cost you any money or involve any obligation. Your preapproval is valid for at least 90 days and can be refreshed if your search extends beyond that time period. Let’s focus on the Big 3; FICO scores, asset reserves and debt-to-income (DTI) ratio:
FICO Minimum for 5% Down Jumbo
You’ll need a minimum 700 FICO score to get to a loan amount of $650K and a 720 FICO up to $850K. For jumbo mortgages in general, especially at a higher loan-to-value (LTV), getting down to 700 is very generous. Of course, the higher your FICO the better your loan’s rate might be, but it’s good to know you can still qualify with greater than a 700 (or 720) score.
Asset Reserves for 5% Down Jumbo
Reserves are a component of getting a jumbo loan — c’est la vie, as they say. But fortunately our 95% LTV jumbo loan does not have an onerous reserve requirement. In fact, in some cases we need just two months of reserves but for most options here, it is never greater than six months. Compared to other 90% jumbo mortgage options that require 18, 24 or 36 months of reserves, this makes qualifying far easier. Remember, reserves are calculated from your total monthly housing payment (PITI). If you have a PITI of $4000 and you have a 6 month reserve requirement, you need to have $24,000 left in your bank account(s) after you close your purchase transaction.
Debt-to-Income (DTI) for 5% Down Jumbo
Since this is a jumbo mortgage, your debt-to-income ratio will need to be under 43% in most cases. How do we arrive at this number? Let’s say you have a gross monthly income of $10,000. If your housing payment is $4000, you have a 40% “front end” or “housing” DTI ($4000 / $10,000). Let’s say you also have a car payment of $250. Now you have a debt ratio of 40% over 42.5%, and you’d still qualify. Your “total” or “back end” ratio is your proposed housing payment, plus any other monthly debts that come over from the credit report. Total debts divided by gross income equals total DTI.
The long-held belief that it takes a 20% down payment was shattered long ago when we offered competitively priced 10% down payment solutions up to price points of $2MM. Many buyers still take advantage of those programs today. But even where the price points go to $700K or even $900K, now buyers have the option to bring in only 5%, often without private mortgage insurance (PMI). If you want to know more and are intent on getting out of the rent cycle, call me today and let’s see if this program is a fit for you.
Gimme five,
Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709
*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.
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