If you are shopping for homes in the King County area—any price over $679,650 may put you in need of a jumbo loan. Just a few miles north, in nearby San Juan County, it's 200k less than that.
Some banks also set limits on jumbo loans. Some will go over $2 million. Other banks will not. The more common conventional loans are only available up to $679,650.
It's Freddie Mac and Fannie Mae who manage the limit on these more common loans. They are not in the business of backing higher loan amounts. So, banks take all the risk when it comes to jumbo loans, hence the need for additional qualifications.
There are a few misconceptions about this type of mortgage. The term "jumbo" can suggest huge payments, for example. But when the payments are analyzed by a percentage of the loan amount these types of mortgages are typically the same cost to obtain.
Today, there are quite a few new features of jumbo loans that are positive for borrowers.
For banks to stay competitive, some offer attractive rates and lower payments. And, excellent benefits as the loan matures. For shoppers, it is vital to look around.
And, ask questions.
If you are looking for a Seattle jumbo mortgage, we've put together a list of the most common questions we have seen come across our desk. This information will help get you on track for approval.
What's the Necessary Credit Score?
Since banks are taking on more risk for these higher loan amounts, they expect a higher credit score of 700 to 720, the general rule when going jumbo is, the higher the credit score, the easier the process.
In some cases however, there is wiggle room, but don't expect much. The lowest credit score is at 680. Check yours here for free.
Think of it like this, if someone is buying more than the county average, has a low credit score and a low down payment, would it be a surprise if the lender who takes on more risk with Jumbo says no to that scenario?
What Documentation Do I Need?
The supporting documentation centers around both income and debt. So, if you have your own business, you'll need to provide tax returns for the lender to properly calculate your debt to income ratios.
Mostly always asked for:
- Length of employment
- Monthly expenses
- Current or past mortgage history
As with any mortgage application, the bank requires a fair amount of supporting documentation to be reviewed.
You must show you are responsible for paying a debt, of course. But, a jumbo loan is also free from some of the standard mortgage rules because it is not a government backed program.
Depending on the lender, there may be some more freedom in some situations. For example, if your business is a new one, a conventional loan may be much more difficult to get than a jumbo loan because you cannot show enough cash flow, post taxes, but have enough revenue coming in that you can qualify based on bank statements.
Keep in mind, the property you are buying with a larger loan comes under more scrutiny, though. Most banks will ask for more than one appraisal of the property if you are borrowing more than $1 Million.
Are the Rates Higher for Jumbo Loans?
For most lenders, the rule of thumb is to place higher rate on a Seattle jumbo mortgage. But, the slow-recovering economy is prompting banks to become more competitive, and thus an opportunity is created for you, the buyer.
And, some banks are offering great perks for borrowers instead of 30 yr fixed interest rates. For example, adjustable rate mortgages are more of the standard than the exception these days.
Savvy buyers understand that they will own the house for a specific amount of time and have an exit strategy in place before buying. Knowing your timeline allows you, the savvy buyer, to only take out a mortgage for the time-period you plan on being in the home. Having a 30 yr fixed mortgage when you plan on selling the home in 5 years is like being over insured, at a certain point, it is just wasted money.
If you are unsure, there are longer term options for ARM borrowers which won't adjust the rate until seven or even ten years from the day you sign your final paperwork.
How Much Do I Need in Cash Reserves?
Because banks hold these loans on their books, without federally backed insurance, they'll need to know you can cover your mortgage payment, even if times get rough.
Most banks want borrowers to have 90 days worth of loan payments on hand. And your debt-to-equity ratio should be at 42% or lower.
What's the Difference Between a Jumbo Loan and Other Loans?
One difference between the two is that banks cannot easily sell off a jumbo loan after closing. They can sell conventional loans since they have the backing of Freddie Mac and Fannie Mae but non government backed loans are subject to an investor’s appetite for risk. Typically, once the jumbo loan is finalized, it will stay with the company that originated the loan.
This government backing for conventional loans offers the lenders security should the loan default. Without this government support, banks must follow stricter guidelines for higher loan amounts.
Homes with higher prices can be more difficult to sell should they have to foreclose since there are less people who are able to afford the higher sticker price. In fact, some foreclosed jumbo homes may stay on the market for years.
For this reason, lenders do not provide jumbo loans for borrowers who are currently in foreclosure or undergoing the short-sale process.
Do I Need a Larger Down Payment?
The standard down payment for the more massive loans is 20% of the sale price. And, some lenders need more or less depending on the borrower.
At Seattle’s Mortgage Broker we have access to lenders who allow for as little as 5% down on a jumbo mortgage purchase.
For example, if the lender deems you a low risk then they will be more willing to allow a lower down payment.
Banks will use a loan to value determination. Using the appraisal value of the home, a 10% down payment results in a 90% loan to value (LTV).
What is the Rule for Debt to Income Ratio?
The debt to income ratio is typically capped at 43% but can vary slightly depending on what the lender calls Compensating Factors such as great credit, job history, available assets after down payment, etc.
To give you an example, up to a 50 % debt ratio is considered standard for a conventional loan.
Is It Harder to Get Approval for a Jumbo Loan?
The requirements for a bigger loan can be lengthy. But, there are also circumstances when the bank can relax it’s rules, it is important to speak with a mortgage consultant to take the correct first step.
For example, some banks with loan amounts of over $1 million but under $2.5 million do not need mortgage insurance. And, some lenders offer a low 5% down payment along with it.
In most cases, for the borrower, their debt-to-income ratio will need to be less than 43%, and the rate of the loan will be the same or only slightly higher (at least 0.25-percent higher, in most cases).
What's the Interest Rate for a Seattle Jumbo Mortgage?
Seattle area conventional and jumbo loans are more affordable, too. In some cases, rates for the higher loan amounts equal those for traditional loans.
Low interest were not the case for many years. And, this includes every category. From 30-year fixed rates to 3/1 adjustable-rate mortgages, prices are declining. Decreases from last year clocked in at 0.05-percent to 0.12-percent.
Most agree it is vital to shop at least three lenders for best prices and conditions.
Are Jumbo Loans Available for Investment Property?
Jumbo loans and super jumbo loans are often necessary for investors. Those who are looking to buy multi-unit properties, for example.
But be aware, if you are buying a property that is 5 or more units then it is no longer considered a residential mortgage and is now a commercial transaction. Purchases of properties with 5 or more units are not subject to the same restrictions RESPA has put on conventional, primary residence mortgages.
In this case, an investor has a higher limit on conventional loans. But, for those who need a jumbo loan, banks do set their limits. For example, some set the limit at $1 million. Others may be $2 million while some lenders will go above $5 million for the well qualified.
Any amount above $2 million is considered a super jumbo loan. Those buying vacation properties in sought after areas may need to spend more, too. Borrowers buying a property that will not be a primary home have additional rules as well.
For vacation or investment jumbo loans, there are more requirements, but they tend to be ubiquitous. For example, anyone purchasing a rental income property must prove incoming rent via an fully executed rental contract or executed contract with no less than 90 days remaining for the property management company.
Are There Other Options for Higher-Priced Property?
For those who are buying a property over the conventional limits, there are options. Some decide to break up the loan and get both a first and second mortgage but these can have their own downsides because of increased time and cost.
n this case, careful work with a mortgage broker is vital. Brokers can avoid the more restrictive nature of a jumbo loan by introducing you to lenders who are specifically built for jumbo loans and xyz criteria. If you go to a bank you are subject to their pricing and rules with no other options except to leave and go somewhere else
Since banks are taking less risk with two conforming loans types via Fannie Mae and Freddie Mac, they are not incentivised to provide the best rates or service on a jumbo loan like a mortgage broker is.
There are more options in lieu of a Jumbo, such as a substantial down payment. This lump sum can reduce both the amount borrowed and monthly payment but can also qualify you for better pricing incentives from the lender due to the larger than average down payment.
Are There Any Perks for Borrowers?
Investment Banks have become more competitive with requirements and rates on their jumbo loans, the downside to these institutions is you need a mortgage broker to access the lower rate and fee structure.
So, when borrowers know all of their options, they can reap some pretty choice rewards.
In some cases tThe terms of the loans can mirror conventional loan terms. So, choices include fixed rates as well as adjustable rates.
Can I Get Approval Through a Broker?
The hard work of getting approved can be easily accessible to someone looking to buy a house in Seattle and it’s surrounding areas.
Working with the right broker will get answers to your questions and help you feel much better about your decision to purchase in the Seattle market.
Once you have found someone you trust, finding and closing on your dream home will be a smooth and straightforward process.
A broker can help with everything from introducing you to a real estate agent in your preferred neighborhood to advising on best rates. And best of all, they know the market. If a good deal is available, they'll know about it!
We Work in Seattle and Beyond
Our 15 years of experience has taught us a lot about how crazy the Seattle housing market can be. Whether you are looking for a first time home, moving up, or downsizing, we know what's available and how to help you get it.
And, if it's a conventional loan or a Seattle jumbo mortgage, we know those, too. We'll help you find the perfect home and the best rates on the market.