Financing a luxury home in Dallas usually meant coming up with a relatively large down payment. Some buyers don’t like to pull out such a large amount from their investment portfolio and tie up those funds in a real estate transaction.
In Texas, mortgage loans that are greater than $548,250 are called “jumbo” loans and historically have required higher down payments when compared to smaller conforming loans. Both Fannie Mae and Freddie Mac set these conventional loan limits annually but have remained above 400K for 10 years and were as low as $93,750 as far back as 1980.
Financing a luxury home in Dallas, wherever the property is located within the state that many banks require a down payment of at least 20 percent. For example, consider a sales price of $1 million. The minimum down payment would then be $200,000. For banks that ask for a minimum of 30 percent down, that equates to $300,000.
That’s a lot of money pulled out of an investment portfolio. Once a down payment is made, that equity is difficult to get to without getting a higher rate home equity line of credit, or HELOC or even selling the home outright. But there’s no need to make such a sizable down payment to finance a luxury home in TX. There is still some great low down payment options available in 2021.
One program available utilizes a combination of two loans. The goal of this structure is to keep the cash to close as low as possible and maintain a buyer’s liquidity. The structure is commonly referred to as a “piggyback” combo loan because a second mortgage piggybacks on the first.
Let’s look at an example financing a home in Texas. Let’s look at a home listed at $700,000. With a down payment of just 10 percent of the sales price, not 20 percent, buyers come to the closing with a down payment of $70,000, much lower than the 20+ down most banks require.
The first mortgage would be at 80 percent of the sales price and a second loan at 10 percent. The first mortgage amount is at $560,000 followed by a second mortgage at $70,000 with the remaining amount being the $70,000 down payment. Lenders also commonly refer to such an arrangement as an “80-10-10.”
With two liens, the interest rate on the second mortgage will be slightly higher than the rate on the first. Lenders offset the additional risk taking a subordinate position behind the first mortgage with a higher rate.
Borrowers may also explore a similar structure when the first lien is at 75 percent of the sales price along with a 15 percent second and a 10 percent down payment. Interest rates on the first mortgage using a 75-15-10 may be a bit lower than on an 80-10-10.
Another option is a piggyback arrangement with just a 5 percent down payment. This option has become very popular in 2021 for buyers looking to retain as much liquid savings as possible. This program results in an 80-15-5 with the first lien at 80 percent of the sales price, the second at 15 percent and a down payment of just 5%.
No monthly PMI, fix rate or ARM with no early pre-payment penalty. Interest rates on the second mortgage in this scenario will typically be a bit higher compared to the 10 percent option.
Both the 90% and 95% Jumbo mortgage programs have the options of a combo piggyback loan or a single loan option. What loan structure makes the most sense will be determined by many factors like loan amount, down payment, credit, etc.
Applicants should take note of a few things before applying for the 90% and 95% Jumbo loan:
- All the programs require full documentation. This means income (W2, Tax returns) and assets needed to qualify.
- $1,000,000 loan limit cap for 95% Jumbo financing. *Please note, loan limits could change with continued volatility in the mortgage markets.
- $1,000,000 loan limit cap for 90% Jumbo financing.
- Only primary for max 95 financing.
- Standard single-family homes, condo permitted. Vacant raw land, or “build on your own lot” financing NOT permitted. See the special Jumbo Construction Financing options. This does not include new construction spec homes being built/sold directly by the home builder.
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