Jumbo loan financing refers to mortgage loan amounts over the conventional loan limit set by the Federal Housing Finance Agency (FHFA). For these loans, mortgage lenders often target commercial banks, credit unions and specific investors (large firms that buy mortgage loans) that specialize in jumbo financing. 5% down jumbo financing refers to the jumbo mortgage financing of a purchase with a down payment of only 5%.
These investors that buy loans from mortgage banks can create their own set of qualifying guidelines that will vary widely amongst them.
What is a Conventional or Conforming Loan Limit?
A conventional or conforming loan limit is the maximum amount you can borrow for a mortgage loan that “conforms” to Fannie Mae or Freddie Mac guidelines. These loan limits fluctuate every year and are based on the median home price for a specific area for the previous twelve months. Loan limits usually vary by county within a state, although many counties within a state often have the same or very similar loan limits.
There are two types of conforming loan limits too: (1) the standard conforming loan limit; and (2) the high-cost conforming loan limit – for “high cost areas” like Hawaii, Alaska, Coastal California, and numerous metro areas on the East Coast.
The standard conforming loan limit in 2024 (the date of this blog) is $766,500; the high-cost loan limit in 2024 is $1,149,825; and you can see what your loan limit is here (all you need is type in your zip code).
What is the Conventional Loan Limit in California?
The conventional loan limit is typically higher in more expensive states like New York and California, as mentioned above, and most of coastal California has a loan limit of $1,149,825. It is very important for borrowers to know what the conforming loan limits are in their area because qualifications and guidelines change so much when financing demands exceed conforming loan limits. Jumbo financing has stricter guidelines than conforming financing.
Because of the added risk for higher loan amounts and smaller down payments, 5% down jumbo loan financing comes with even more stringent qualifying guidelines.
Can You Get a 5% Down Jumbo Mortgage Loan in California?
Many programs offer lower down payment options for those looking to stay under the county loan limit. But, once your loan amount goes above the county limit, down payment requirements will typically jump to a minimum of 10% down.
The jumbo loan programs with the absolute lowest rates often demand a minimum of 20% to 25% down.
Do not give up hope though, as there are some lenders with 5% down jumbo programs. These lenders are few and far between, and the guidelines tend to be a bit stricter with respect to income, credit and reserves (cash) held after closing. But the terms remain surprisingly good.
5% down jumbo financing also almost always involves what is called “combination” financing – where borrowers obtain both a first mortgage and a second mortgage to get to their desired “combined-loan-to-value” (the total dollar amount of your financing divided by the price of the home). If your purchase price is $1 million, and your first mortgage is $800,000 and your second mortgage is $150,000, your combined-loan-to-value is 95%.
View mortgage rates for
May 13, 2024
Combination Financing Explained Further
When it comes to low down payment jumbo financing – with less than 20% down, there are a few options.
With 10% down, you can get either one loan up to 90% “loan-to-value,” or you can get two loans knows as combination financing, as explained above or more fully in the link.
First mortgages for combination financing are usually fixed rate mortgages up 80% loan-to-value, and the second mortgages are usually variable mortgage tied to the Prime Rate.
With 5% down, the only option is combination financing – with an 80% loan-to-value first mortgage and a 15% loan-to-value 2nd mortgage.
The drawback to the 5% down option is that the maximum amount for the 2nd mortgage is only $250,000. For 10% down combination financing, the maximum 2nd mortgage is $500,000.
So, if a California borrower in a “high cost” area wants 5% down jumbo financing, her maximum first mortgage will be $1,149,825 and her maximum 2nd mortgage will be $250,000. This will limit her maximum purchase price to about $1,475,000 – if she wants to put only 5% down.
Credit And Income Guidelines
The good news is that some lenders remain surprisingly flexible when it comes to 5% down jumbo financing.
These lenders allow “debt-to-income ratios” as high as 50% and credit scores as low as 680!
Your debt-to-income ratio, as a quick reminder, is the total of your housing payment (including property taxes and insurance) coupled with all of your monthly consumer debts and divided by your gross monthly income (before taxes are taken out).
Talk to a Mortgage Expert Today About 5% Down Jumbo Loan Financing
Talking with a lender to see what programs and options are available with less down is always worthwhile, particularly if that lender offers all of the most competitive 5% down jumbo financing options like JVM Lending does.
JVM’s mortgage experts can determine if 5% jumbo loan financing makes the most sense for you and answer any other questions or concerns you might have. You can reach us at (855) 855-4491.
