Jumbo loans, or nonconforming mortgages loan, most often require at least 20% down, as they pose more risk to the lender. While you can likely find a lender who will extend you a conventional mortgage with less than 20% down, especially if you qualify for a VA or FHA loan, jumbo loans with less than 20% or more down are rare. There are signs however, that lenders may be relaxing credit and loan requirements though, and extending jumbo loans with as little as 5% down!
Why do jumbo loans typically require such large down payments?
Lenders generally have more stringent loans requirements on jumbo loans because not only are they taking on more risk and lending out more money on one property, but additionally, jumbo loans are harder for lenders to resell, making them a less attractive option for many lenders. This results in fewer lenders willing to offer jumbo mortgage loans, and stricter loan requirements and loan underwriting criteria for the lenders who do offer jumbo mortgage loans.
At least one major lender is now advertising jumbo mortgage terms that require just a 5% down payment – allowing you to borrow up to 95% of the loan-to-value of the home. Lenders are not loosening their down payment requirements for jumbo loans without strings though: currently in order to qualify for the lowered jumbo loan down payment, a prospective buyer will need a credit score of at least 740 and the debt-to-income ratio including the jumbo mortgage cannot exceed 35% of the buyer’s total income. Additionally, a lender may put additional requirements around loosened jumbo loan requirements, such as requiring that a buyer have 12 or 24 months of mortgage payments in liquid assets in order to qualify for the loan. Requirements like this essentially do not open up jumbo mortgage lending to individuals who wouldn’t have otherwise qualified – because if you have 24 months of mortgage payments in savings, that may end up being about the same amount of cash on hand required as if you had simply put down 20% to begin with.
Signs like these however, point to a real estate market that is recovering, and which is strong and growing in places and in economic segments. Lenders may be again ready to start to offer creative and unique financing options to attract buyers with proven credit records and financial assets which help to offset additional risks to a lender.