Mortgage Info for Homes and Small Business Financing

Using a Conforming Loan to Buy Jumbo

It is important for borrowers and realtors to comprehend how a conforming mortgage loan differs from a nonconforming jumbo mortgage.  In the current environment, this could never be truer.

The difference in rates between the two was historically anywhere from ¼% to ½% with the jumbo loans being the higher of the two.  Today, that difference has widened to as much as 1.75% due to the illiquid nature of the jumbo secondary market.

The conforming loan limit is $417,000.  That is the maximum loan amount that Fannie Mae or Freddie Mac will buy from a lender in the secondary market.  Anything above that is a jumbo loan.

If the borrower has a sizable down payment of 20% to 25% then they can get a property with a sale price in the $500’s using the $417,000 maximum conforming loan as their first and only trust.

But what if the borrower doesn’t have that kind of money for their initial investment?  What can a buyer and their realtor do if they can’t find anything suitable in that price range?  Are they limited to a sales price of $417,000 with a zero down payment?  If they want to purchase a higher priced home with mortgages above $417,000 do they have to pay the higher jumbo rate?

Not necessarily!  We have been successful in using an 80/20 or 75/25 program and running the loan request through Fannie Mae’s Desktop Originator (DO) or Desktop Underwriter (DU) automated underwriting systems (AUS) and getting Approve/Eligible findings.

For instance, we have a married couple who are transferring here from Jacksonville, Florida, and have not been able to sell their home.  They do not want to tap their savings for their new home purchase.  They have superior credit scores and a salaried position with a major employer.  And they understand that now may be a great time to pick up some else’s problem at a good price.  Their realtor was concerned that they were not going to find anything in the low $400s that would be similar in size to what they had in Florida.

We obtained Approve/Eligible findings for a purchase of up $556,000 with a 75% first trust of $417,000 and a second trust of $139,000 for the remaining 25% of the price.  In addition, the buyers are also eligible to negotiate a closing cost credit from the sellers.  The only restriction is that the buyers have to put $500 of their own funds into the transaction which is more than reasonable.  But that’s it – Less than one tenth of a percent of the selling price!

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