Securing mortgage loan financing right has become a little bit of a challenge for some families desiring to borrow money. Here are some considerations you need to be aware of if you’re looking for a jumbo mortgage during the coronavirus pandemic…
If you’re looking to mortgage a house and the size of a loan that you’re looking for is jumbo you may have a difficult time securing financing. First things first, a jumbo mortgage is a mortgage that is not bought and sold by Fannie Mae and Freddie Mac. Using Sonoma County, California as an example, the maximum loan limit for a one-unit property is $704,950. Any first mortgage that is greater than this amount automatically becomes jumbo. Jumbo mortgages traditionally are more difficult to come by, e.g. higher credit scores, more down payment required, etc. as jumbo mortgages do not have the type of government backing that loans at the $704, 950 limits do. As a result, there’s a smaller pool of available investors willing to lend money in the jumbo mortgage space.
Enter COVID-19 in the last several weeks. Mortgage lenders across the country have been changing how they originate loans for furloughed borrowers and jumbo investors are exiting the market. Many jumbo investors have pulled out of the market due to the perceived level of risk the national pandemic is creating. Jumbo mortgage financing is not impossible to obtain, but it is more difficult and finally straining.
An alternative to a jumbo mortgage would be to do the financing with cash. So if you’re purchasing a house for $1m in Sonoma County, California in order to avoid getting a jumbo mortgage you could put down the cash so your maximum loan size is $704,950.
That is also quite a bit of money. A pragmatic alternative would be to do a first and second combination. By doing the first mortgage on a 30-year fixed for example and a home equity line of credit like a second mortgage, you would attain a lower monthly mortgage payment then you would if you did a jumbo mortgage, your mortgage process would be substantially easier, the loan would close faster and you could more than likely do it with lucrative terms with as little as 10 percent down.
Most second mortgages will go up to a maximum loan size of $250,000. Some will do bigger, but that will come at the expense of more strict underwriting, so on average for illustrative purposes, it’s a good rule of thumb that getting a $250,000-second mortgage could be a very good option for being able to avoid a jumbo mortgage.
When the jumbo mortgages come back, which they probably will after the coronavirus pandemic is over, you could certainly always explore the possibility of refinancing and consolidating your first and second mortgage into one new loan down the line. This is a way for you to have your cake and eat it too from a financing perspective while simultaneously meeting the contractual purchase dates of your escrow.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.