Ready to buy a home in Seattle in 2021? 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 things you need to know in this area is the cut off point for conforming and jumbo mortgages.
Even COVID, lockdowns, the presidential election, and chaotic protests haven’t been able to slow down Seattle’s hyper competitive and expensive property market.
So, if you are thinking of buying a home in Seattle or refinancing one, chances are you may need a bigger loan than ever. How much of a home loan can you expect to get this year? What are the conforming loan limits? When might you need a jumbo mortgage? What other financing options do you have?
Seattle Home Prices & Getting The Home You Want
Even with Seattle home values at an average of $804,000 as we rolled into 2021, 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 $1M to get just an average home that may need repairs and improvements.
Seattle’s housing market is notoriously competitive and pricey. This can make things extra challenging for home buyers. You need to know what you qualify for and have a solid mortgage pre-approval in hand so that you can make a great offer on a home before the competition, and be confident in that approval sticking when it comes time to close.
Educating yourself on the financing available will also help make sure that you aren’t unnecessary passing up opportunities from the sidelines and end up paying a lot more for the same home later.
The only thing that seems more expensive than buying here is renting a place in Seattle. The longer you wait to buy the more expensive it will probably be.
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 2021 conforming loan limits. For the fourth consecutive year, the FHFA has raised the maximum conforming loan limit. For 2021 the national standard is now up to $548,250.
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 $776,250.
So, you won’t hit the baseline jumbo loan limit in 2021 unless you need to borrow more than that. You can borrow up to this cap, and still get all of your favorite conventional and government backed loan program features. Like low and no down payment home loans.
Jumbo Mortgage Loans
Loan amounts above these limits are called ‘Jumbo Mortgages’.
There is technically no limit on how big of a mortgage you can get, but these loans are slightly different, and you’ll probably need the help of a great Seattle mortgage broker to find a great fitting jumbo mortgage.
These loans can run into the millions of dollars range. However, loans over $1.5M may have to be directly sourced to Wall Street level capital markets money. Most individual lenders don’t want to take on all of that risk in one loan just by themselves.
Find a Cheaper Home
You may be able to negotiate the seller down enough to make it under the conforming loan limit.
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.
How Hard Is It To Get A Jumbo Mortgage Loan?
Because of their size and the amount of money on the line these loans can be riskier for lenders. However, chances are that if you are needing one, you also have stronger finances than the average home buyer as well.
Lenders may look more closely at:
- Loan to value
- Down payment
- Credit score
- Payment shock
- Liquid assets
- Debt to income ratios and monthly disposable income
This doesn’t mean it is harder for you to get a loan. In fact, as a high income earner you may far more comfortably afford a $5M home than the average worker can afford the average $780,000 home.
Even interest rates have become more aligned between conforming and non-conforming or jumbo loan limits. Some lenders even prefer loaning to more sophisticated borrowers and may reward them with lower rates.
Still, you can expect to put out a larger down payment for a jumbo mortgage loan. Typically 10% to 20%. If that’s not attractive to you, then there may be some other options.
VA Home Loans
Active duty service members and veterans of military service may qualify for VA home loans with no loan limits. These loans can offer 100% financing, even above the conforming loan limit.
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...