Ready to buy a home in Seattle in 2020? You might need a jumbo loan.
Buying a home in Seattle isn’t cheap. Lenders have a variety of loan limits. One of the most important you need to know in this area is the cut off point for conforming and jumbo mortgages.
What can you do if your home and loan needs exceed the conforming loan limits? What are your other financing options?
Seattle Home Prices & Getting The Home You Want
Even with Seattle home values dipping close to an average of just $700,000 as we rolled into 2020, most buyers are going to require a sizable mortgage to get into a home.
Even the least expensive Seattle suburbs and communities now average prices over $400,000. In others you’ll need to invest at least $800,000 to get just an average home that may need significant repairs and improvements.
Still, with an average local rental rate of over $2,600 per month it makes sense to buy a home for those planning to stay in the Emerald City for two years or more.
You may have done some initial home loan shopping and found some lenders and loan programs top out well below the amounts you’ll need to finance. So, how can you get a home you’ll be happy with in this market, and access more capital?
Conforming Loan Limits
The Federal Housing Finance Agency (FHFA) sets conforming loan limits. Those are the maximum loan sizes for conventional mortgage loans and government backed home loans. Like VA, FHA and USDA loans.
That loan limit was just in the $400k range in 2019. Far below what most home buyers in Seattle would need.
Fortunately, the FHFA has announced another great leap in 2020 conforming loan limits. For the fourth consecutive year, the FHFA has raised the maximum conforming loan limit. For 2020 the national standard is now up to $510,400. A $100,000 increase over 2018.
The good news is that there are exceptions for high cost areas. Those with average home values that are at least 115% or higher than the national average. Obviously, we are in one of those zones.
Those buying homes in King County, Pierce County and Snohomish County, WA are now eligible for an exception which provides a maximum conforming home limit for single unit dwellings of $741,750.
So, you won’t hit the baseline jumbo loan limit in 2020 unless you need to borrow more than that. You can borrow up to $741,750 and still get all of your favorite conventional and government backed loan program features. Like low and no down payment home loans.
Find a Cheaper Home
The Seattle housing market has turned in favor of buyers. Prices have come down a little bit. There is more room to negotiate and ask for seller concessions.
You may be able to negotiate the seller down enough to make it under the conforming loan limit in 2020.
Or you may find you can get a lot more house for your money in the suburbs, and can deal with a property that may need a cosmetic makeover. In these cases, the 203k loan can actually give you up to $50,000 to make improvements and renovate your house when you buy.
Make a Bigger Down Payment
Not everyone is going to find a cheaper home that works. Especially if you are still stuck in a job that requires you to show up to an office and commute every day. In these cases you can simply make a larger down payment to stay under the limit. You can buy a $1M home and put down $300,000.
Large down payments and lower LTV loans are also often rewarded with better interest rates and easier underwriting.
If you don’t have the cash on hand to do this, there are options. You may be able to access some of your IRA and 401k account without penalty as a first time home buyer.
A line of credit or bridge loan from another property can help too. Just make sure you consult your Seattle mortgage broker first and find out the best way to structure it and the potential impact on your credit and required documentation.
If you need to breach the conforming loan limit, you will be in non-conforming loan territory. This is where jumbo mortgage loans begin.
You may need to go to the best Seattle mortgage broker to get access to these loans instead of trying to walk into a bank branch.
There is really no jumbo loan limit. You can finance several million dollars if you need to and qualify. These funds can come from larger private funds, and may even be directly securitized on Wall Street if they are that large. Many wealthy individuals continue to prefer to maintain at least a 50% mortgage for asset protection, tax and liquidity purposes. Even if they have the cash to buy three houses outright.
Exceptions & Compensating Factors
If you are buying a $2M plus home and need a jumbo loan, chances are your finances look a little different to the average salaried home buyer.
While it can be true that larger loans may require careful underwriting to minimize lender risk, these can be very attractive loans too. You may need two appraisals, but in some cases you might get an even lower interest rate.
Your mortgage broker can also help you identify your strengths and if they have strong relationships in the industry can get exceptions granted for any areas you are weak in. For example; you need a higher LTV loan, but have substantial assets. Or the AGI on your tax returns makes your DTI look high, but you have no payment shock and an awesome credit score.
Creative Loan Structuring
Your loan officer can also help you structure your home purchase and financing to achieve the maximum loan amount and best terms.
Some examples of this are an 80/20 or 80/10 loan, which gives you a great deal on a low LTV first mortgage and no mortgage insurance, with a second mortgage to eliminate the need for a giant down payment. The Mortgage Reports says this ‘blended rate’ strategy can actually result in lower borrowing costs and payments.
Get qualified today and get the Seattle jumbo loan you need to finance a great home...