Homebuyers in Louisville have more options today to leverage their home purchase, and retain their cash savings instead of making a huge down payment. In the past, most jumbo financing options would require 20% or more down payment. But today, options are available up to 95% financing.
In Kentucky, a jumbo mortgage is any loan that exceeds the conforming loan limit of $806,500. So for buyers purchasing property under this amount, a regular conventional or FHA loan will often be suited best.
The luxury home market in Louisville – Jefferson County offers a wide range of options, and removing cash from a savings account to use as a down payment should be carefully considered, as funds used for a down payment are no longer liquid once spent. Jumbo financing with as little as 5% down is available to qualified buyers, and the best part it does not require mortgage insurance. This is done through a first and a second mortgage piggyback loan.
Such a program is referred to by mortgage companies and banks as an 80-15-5 where 80 represents the first mortgage at 80 percent of the value of the home and 15 is the second mortgage at 15 percent of the sales price. The 5 is the borrower’s down payment. For example, using an 80-15-5 jumbo loan on a sales price of $900,000, the first mortgage would be at $720,000 which would mean no mortgage insurance required. The second mortgage would be at $135,000 and a down payment of $45,000.
Typical terms for the 80-15-5 program ask for a minimum credit score of 680 with 3 months of payment reserves. Reserves are the total monthly mortgage payments including principal and interest, property taxes and insurance. Lenders may also limit the first mortgage and for those that do, the maximum amount for the first lien is $1 million, although these guidelines can vary slightly from lender or bank and do change.
A similar loan structure can also be used by putting 10 percent down and still keeping the first mortgage at 80 percent of the sales price avoiding mortgage insurance and a second lien in the amount of 10 percent of the sales price, referred to by lenders as an 80-10-10. Again with a sales price of $900,000, the first loan would be $720,000 and the second at $90,000 using a down payment of $90,000.
What are the differences between these different structures? Obviously, the biggest difference is the amount of the down payment, but there are others as well. Anytime there is a lower down payment, qualifying guidelines can stiffen and when they do, lenders offset the additional risk with a slightly higher interest rate.
A buyer in Louisville with a 20 percent down payment and a 780 credit score will have a lower rate than someone with a 5 percent down and a 680 credit score. Additionally, second mortgage rates will vary based on the initial down payment by the borrowers.
For instance, a second lien mortgage rate when someone has a 10% down payment will be lower than someone with a 5% percent down. It might seem a bit confusing at first glance, but really the only things different are the interest rates on the various loan structures. Your loan officer can provide you with different scenarios based on how much you decide to put down and explain the advantages and disadvantages of each. Don’t forget to also inquire about single 95% Jumbo loans with no PMI.
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