Jumbo home loans: Do you need 20 percent down to qualify?

Low down payment jumbo home loans

One disadvantage of buying a more expensive home is being shut out of the most forgiving mortgage programs. FHA, USDA, Fannie Mae and Freddie Mac mortgages are not an option. But don’t despair; you can find jumbo home loans with down payments as low as 5 percent. And there are other alternatives.

Make sure you need a jumbo mortgage

Fannie Mae and Freddie Mac impose a $484,350 limit in much of the country. But in pricier locations, they allow you to go higher — up to $726,525.

In addition, if you choose a multi-unit property, like a duplex, your limits are significantly higher.

You can check your location’s limit on Fannie Mae’s website. There is a spreadsheet there with limits for all counties in the US.

Alternatives to jumbo home loans

Jumbo mortgages are not always more expensive. In fact, sometimes they have better mortgage rates than conforming home loans (Fannie Mae and Freddie Mac) or FHA programs.

But when they are pricier, you may have other, cheaper alternatives.

Consider the piggyback mortgage. That’s a combination of two loans — a first mortgage and a purchase money second mortgage. For instance, you might be able to get a conforming loan if you choose one that is 80 percent of the property sales price. Then you back that up with a 15 percent second mortgage and put 5 percent down.

Another option, if you’re eligible, is VA financing. The VA mortgage program has no maximum loan amount. But it does have a maximum guarantee for its zero-down program. Many lenders will allow you to finance more than the maximum guarantee if you have some money to put down.

For instance, if your local loan limit is $484,350, and you want to buy a $550,000 property, you can do that with a VA mortgage by putting up 25 percent of the difference between the purchase price and the maximum guarantee. So in this case, it would be one-fourth of $550,000 - $484,350. $65,650 divided by 4 is $16,412.50. That’s just under 3 percent down.

Qualifying for best jumbo home loans

Jumbo mortgage lenders do offer mortgages with down payments as low as 5 percent. However, most require mortgage insurance, and to qualify for mortgage insurance, you need to be a strong-ish borrower.

Related: How to use jumbo financing to buy more expensive homes

For instance, national mortgage insurer Genworth requires a FICO of at least 660 and a debt-to-income ratio under 45 percent to insure a loan of up to $700,000. For a 620 credit score, you’ll need at least 10 percent down.

There are jumbo lenders that self-insure, and they sometimes offer low down payment options. Be prepared to pay a little more for this financing. And remember you’ll save by not paying for mortgage insurance.

Finding the best jumbo home loans

Mortgage rates and guidelines for jumbo home loans vary more widely than they do for conforming mortgages. According to Mortgage Industry Analytics Corporation (MIAC), rates on any given day can differ by as much as .5 percent.

And because the loan amounts are higher, this difference matters more. If you get a $700,000 mortgage with a 5 percent rate, your principal and interest come to $3,758 per month. But at 5.5 percent, the payment is $3,975, or $217 more.

In five years, you could save over $13,000 simply by choosing the less-expensive mortgage!

Because of the numbers involved, it may pay to consider an adjustable rate mortgage (ARM) with a rate fixed for three, five, seven or ten years. Studies show that many, especially first-time buyers, don’t keep their homes more than a few years before moving. And these loans can shave anywhere from .25 to over 1 percent from your mortgage rates.

With jumbo home loans, you have to search a little more and dig a little harder to find what you need. But that is not difficult to do with an online search.