Guide to Jumbo Mortgages
What is a Jumbo Mortgage?
Jumbo mortgages exceed the Conforming loan limits ($453,100 for single family homes). This is specialized type of financing, and we'll explore the special things you need to consider with a Jumbo mortgage.
New School Vs. Old School Thinking about Jumbo Loans
In the past, there was a large difference in pricing and options between Conventional and Jumbo mortgages. In the old way of thinking, people would try to avoid Jumbo financing at almost all costs. They'd either scramble for extra money to stay under the Conforming limit -- or split up their mortgage between a first and second mortgage. Not fun!
However, the gap has largely disappeared. In fact, sometimes Jumbo is better (read "What May Surprise Me"). This is true even on 30-year fixed Jumbos.
One reason for this is that the Conventional agencies (Fannie Mae and Freddie Mac) have become invisible sources of revenue for Congress. Although invisible to consumers, there's a "g-fee" (a government fee or tax) that's built into the pricing of Conventional mortgages at the agency level. It's built in before it ever reaches individual lenders or consumers.
There are some technical reasons that we'll skip, but the bottom line is this: As far as pricing, Jumbo is typically about the same as Conventional. In terms of options, most of the options are also available with Jumbo loans.
So the new school mindset is that Jumbo is "the way to go" if you can find a suitable option. The problem is most lenders don't specialize in Jumbo financing. More on this below.
So it's hard to find many options concentrated with a single lender. Fortunately, Jumbo financing is a huge specialty for us, and we do have many options available. I will be happy to walk you through your options. Keep reading...
What Might Surprise Me about Jumbo Mortgages?
Here are a few programs that even surprise me as a loan officer specializing in Jumbo financing...
We have a Jumbo program that allows 15% downpayment with no PMI (Private Mortgage Insurance). It involves a slight bump to the rate, in lieu of PMI. But the overall payment is often much lower than including PMI.
We also have 5-10% down programs with no PMI, but the rate is higher than 15-20% down.
We have Jumbo programs that go to 5% down payment. Many lenders require 20% minimum. Some go down to 15%. Five-percent down payment on Jumbo is very hard to find. We have it!
With Jumbo, we can do some things you can't do on Conventional. For example, some high-asset borrowers don't have a lot of income. Maybe they're retired. Maybe they sold a business. We have an asset-based repayment program for Jumbo.
I'll be happy to help you explore any relevant options when you get in touch through Get Started Online.
Difference Between Types of Companies
Many of the things we discuss in this guide relate to our unique depth of Jumbo options and expertise. Where does that come from?
Before I came to Cherry Creek Mortgage, Co., in 2014, I considered many companies. One of the discussions I always had was about Jumbo options. This was very eye opening! Some well-known banks in the area told me their options are limited because they only do a few Jumbo deals per year in Wisconsin. That's the whole bank!
Many local banks outsource their Jumbo financing to a single investor. But even if they have multiple options, it's definitely not a specialty.
Internal Underwriting Vs. Outsourced Underwriting
Many lenders, including banks, outsource underwriting on Jumbo loans. One reason is because there's a huge repurchase risk. Repurchase risk is when the investor doesn't like something in borrower's profile, appraisal, or any other part of the file. They can force the originating lender to repurchase it.
Because Jumbo doesn't have a uniform secondary market, lenders incur huge losses on Jumbo repurchases. Often there's not another investor who will purchase the mortgage under similar terms. This means the lender will need to sell it on the "scratch and dent" market at a huge loss -- often 12-17% of the loan amount (that could be an immediate $170,000 loss on a $1 million dollar loan)! By getting the investor to underwrite the file, the correspondent avoids repurchase risk. But by doing this, they sacrifice control and speed over the file.
Types of Jumbo Lenders
In order to understand the difference a company can make to your ultimate experience and outcome, you need to understand a brief summary of the types of mortgage lenders--
Large banks - They will have a set of Jumbo options with one set of guidelines. This provides limited options and makes it impossible to "reroute" if you hit a snag with those guidelines. Plus, many sellers will not accept buyers using large banks because they're notorious for being slow, bureaucratic, and unreliable. Since their central operations are not local, they're also more likely to select lower quality appraisers for specialized, high-end homes.
Local banks and credit unions - Most local banks in Wisconsin don't do a lot of Jumbo financing. Some will have a few internal portfolio options (for ARMs). Most outsource their fixed rate options to a small selection of Jumbo investors (often only one). Typically, this means they outsource the underwriting. That involves sending your file off to a larger lender and wait for them to underwrite it (see above).
Mortgage brokers - They outsource everything. They send your application to someone else to underwrite, and they have no control over the process. Most of the skilled people in our industry have exited the broker industry and joined the correspondent industry.
Correspondents who outsource underwriting - A correspondent is a hybrid between a bank and broker. They're different than a broker because they fund mortgages with their own funds and then sell it to their investors. Their advantage over banks is having more options, more channels, more than one set of guidelines. However, most correspondents outsource underwriting on Jumbo loans.
Correspondents with internal underwriting. This is the type of company we are. We underwrite most of our Jumbo loans internally (although we also have some outsourced options). This is the best of all worlds in the mortgage business. We have various investors, various channels, but we fund most of these loans with our money and underwrite them internally without our company. This gives us the most options, with the most speed, and most control over the process.
On top of having the ideal operation model for Jumbo financing, our company does a massive amount of business in Jumbo-concentrated areas. Based in Denver, our company is one of the top market share lenders in both Denver and Boulder markets where the average sale price far exceeds Wisconsin (by about 6-10 times!). We also lend in Silicon Valley where home prices are extremely high. So we've developed a unique depth of Jumbo options to serve our customer base. Although Wisconsin has fewer high-end transactions, these products and options are also available through us at our branch here in Wauwatosa.
So when you're working with us, you're getting an exceptional depth of options, experience, speed, and control over the process I don't think you'll find anywhere else.
You can read about some of the options below....
Jumbo Mortgages - Basic Options
Here's a brief summary of some of the basic options. Later, we point out some of the more specialized programs. Please note, not all of these options combine together. These are options from distinct programs, so let's discussion your applicable set of options to make sure we identify the program that fits best for you.
Fixed terms: 30, 20, 15, 10 year.
Types of Adjustable Rate Mortgage (ARM) options: 5/1, 7/1, 10/1
Down payment options: 5%, 10%, 15%, 20% (+)
Interest-only options available for some programs
Homes: Single-family homes, Condos, 2-4 units
Occupancy: primary residence, secondary residence (vacation homes), and investment properties
Loans up to $3,000,000
Co-signers available on some programs (for income qualification)
Borrowers can be U.S. Citizens, permanent residence, and non-permanent resident aliens eligible (with valid Visa, extra requirements)
Some programs allow recast options (a recalculation of your payment after making a large principle payment)
Inter vivos revocable living trusts typically eligible (subject to additional guidelines)
Some loans are assumable (when you sell, the buyer can potentially qualify to take over your mortgage)
Construction-to-permanent financing available
Multiple properties financed (some programs have no limit on the number of other financed properties you own)
- First-time homebuyer loans up to $1,000,000 (other borrowers up to $3,000,000)
- Borrower can use gift funds with at least 5% borrower contribution
Don't worry about trying to figure out the options by yourself. I'd be happy to help you explore. If you're planning to search for a home within the next three months, start off by completing the information at Get Started Online.
As mentioned, not all these options combine together or apply to all programs. An example would be 5% down only matches with primary residences, not investment properties. The same point applies below --
A Few Special Jumbo Mortgage Programs
We have many special programs and options for Jumbo financing. Here are some examples --
85% financing with No PMI
5% down Jumbo financing (95% financing)
Non-warrantable condos with as low as 10% down
High debt-to-income ratio (up to 50%, sometimes over with special circumstances)
VA Jumbo Loans (VA financing with expanded loan limits)
Non-Qualifying Mortgages (Non-QM) options programs for borrowers with high debt-to-income ratio
Medical Professional Program: Helps residents with future job contracts and/or deferred student debt
Asset-based repayment (use assets in lieu of income to qualify). Can be used for any age borrower.
Exclude existing home for sale from debt-to-income ratio (special program with limited options)
Interest-only program (pay only interest for fixed period of an ARM)
30-year fixed financing with debt-to-income up to 50%
Business funds for downpayment
Capital gains income
Restricted stock and stock options countable as income on some programs
Special income: Trust income, E-sop Income, Retirement income, Stock options income
Non-arms length transactions (relationship between buyer and seller)
80% Cash out refinance
Purchase with gift funds as downpayment (5% borrower contribution)
Large acreage (25 acres)
24 months after bankruptcy or foreclosure, short sale, or deed-in-lieu
Income from future employment
Cash purchase-to-mortgage program: Buy with cash, refinance with benefits of a purchase mortgage
No credit profiles allowed (no credit scores)
Non-owner occupied (investment property loans)
Non-occupant cosigner (for income qualification)
Corporate relocation: Under certain corporate benefits, we can exclude an existing home from you debt-to-income ratio when you haven't sold it before purchasing a new home)
Pre-Approval for Jumbo Financing
If you'd like a pre-approval, you do not need to choose a program first. We'd be happy to help you explore. When you're interested in pre-approval, complete the information at Get Started Online.
Jumbo Financing in the Competitive Real Estate Market
The real estate market is extremely competitive right now. It's true both in Greater Milwaukee and around the country. There's an abundance of homebuyers with a shortage of homes for sale. The problem is worse for price ranges below the Jumbo realm. However, buyer competition is also becoming a though issue for high-end markets.
The problem is significant enough that many buyers are purchasing with cash simply to stand out from other buyers. Buying with cash gives you the advantage of speed and reliability. Jumbo mortgages typically take longer than other types of loans. Most buyers with Jumbo mortgages take 60 days or more to close. This is where you can gain an advantage...
If it's not feasible for you to purchase with cash, our VIP FasTrak program is the next best thing. It can give you a high degree of the same advantages -- speed and reliability. In this program, we start the underwriting on your loan before you find a home. Normally buyers only get a "pre-approval" before finding home and postpone underwriting until after they get a contract on their new home.
Our VIP FasTrak program can set you apart in two ways. First, you'll gain a huge edge on speed. You'll normally be able to close in about half the time as most other buyers with Jumbo mortgages. Second, you'll receive a special approval and loan status letter you can provide the seller that shows the steps you've already completed. This program is all the more important with Jumbo financing because even with an efficient company like us, there are aspects we don't fully control such as the appraisal timeline -- which typically takes longer on Jumbo loans. We want to do everything possible to give you an edge and to give you a head start!
A common dilemma for buyers in the Jumbo market is owning an existing home. It's often an issue to buy a new home before selling the existing home. Some buyers use a home sale contingency which makes their offer to purchase contingent upon selling their existing home first. In a competitive market, it can be difficult to get your offer accepted with a home sale contingency.
There are few ways we can help you avoid a home sale contingency. If down payment funds are the issue, we may be able to help with a bridge loan. This is a short term loan based on equity of your existing home.
If debt-to-income ratio is the issue (ability to qualify while paying for two homes), we have a couple ways to help in this area as well. First, a few of our Jumbo options allow us to exclude the payment of your existing home from the calculation. Second, if you ultimately must use a home sale contingency, our VIP FasTrak program can put you in position to close as quickly as possible after your home sells. It can also give more confidence to the seller as they wait.
Planning and preparation
Jumbo financing is more complex, and it generally involves a longer process to complete. We should meet in advance to help you plan and prepare. While we'll try to help you at any stage, we can't encourage you strongly enough to meet with us before you find a home. Don't wait until after you find one! This can make a huge difference to your ultimate experience and outcome.
Jumbo Mortgage Rates & How to Compare
We're happy to help you compare rates and options. We offer a free Total Cost Analysis of any relevant programs -- so that you can easily compare the overall costs of any programs. We emphasize looking at the full picture, finding the right options, and providing accurate information. We need to gather some information from you in order to do that.
If you're targeting a purchase within three months, click Get Started Online, and we can customize a Total Cost Analysis for any programs for any programs you wish to compare.
Why Your Loan Officer Matters More with Jumbo Financing
In reality, the skill and communication abilities of your loan officer always matter, especially for purchase transactions. When it involves Jumbo financing on top of that, your loan officer's skills and experience matter even more. Here's why...
Most loan officers handle only a few Jumbo loans over the course of their career. Jumbo guidelines are not uniformly standardized like Conventional guidelines. Each lender has its own widely-varying set of guidelines. Some of the guidelines are quirky and counterintuitive. A loan officer who's not proficient with Jumbo financing is more likely to operate with a conventional financing mindset, make mistakes, and fumble the deal.
Similarly, most loan officers won't know all the options available on Jumbo financing, even they even have access to many options.
Jumbo financing has been my top specialty since 2009, after the mortgage crisis. At that time, I was working in Lake Country in Pewaukee. Jumbo channels dried up across the entire industry, and I developed a strong reputation in this niche. Other banks referred people to me, and I worked with people all over Wisconsin.
Many of the Jumbo customers I gained around that time have worked with me multiple times since. One particular customer owns both a primary home and secondary home. He is in a business that completely relies on banking relationships, but he only trusted me with the complexity of his financing after figuring out deals nobody else could do. We've done six transactions together in that time.
Jumbo clients often have highly complex financial profiles from self-employment, investment, and odd types of income or assets.
I'm very experienced with navigating the complexities of Jumbo financing. I've successfully obtained countless special exceptions for customers with special situations including ups-and-downs with business income, investment income, and special types of income often not considered stable. It's hard to over-state the difference between working with someone like this verses an average loan officer.
I've successfully completed many almost impossibly-complex Jumbo deals (read a few examples under "Success Stories" below). Not just anybody can successfully handle these. Gaining proficiency in this niche was a definite learning experience. It also has involved considerable risk-taking to invest staff time and my own time working on complex, time-intensive deals that most others wouldn't even try. The experience and skill I've gained provide a very real value for my customers.
Let's Work Together!
Here are three key benefits to working with us --
As you can see, we approach the Jumbo mortgage process very strategically. We have a plethora of Jumbo options, and a high level of expertise with Jumbo financing. Our commitment is to help you find the right combination of options that are best suited for your personal situation.
Unlike a bank or credit union, our reputation and business depend completely on the experience of customers in the mortgage process. You will be our priority, and we'll walk you through the process from beginning to end.
Equally important, we can give you a distinct advantage for getting your offer accepted. When the seller's Realtor sees we're providing your financing, it can make a real difference because of our strong reputation in the real estate community.
On top of that, our VIP FasTrak program can give you a bona fide head start. This will set you apart from nearly any other buyer who's applying for a mortgage. It will set you apart in terms of the confidence, reliability, and faster closing date you can offer to the seller in contrast to nearly everyone else who's much earlier in the mortgage process.
Your first step is to complete the information at our Get Started Online portal.
A Few Quick Success Stories on Complex Jumbo Deals
Pure Capital Gains with low assets - It's always a challenge to count Capital Gains (Schedule D) income due to the issue of reliability. But this particular case involved many additional layers of complexity. A key to count Capital Gains as income is to verify the customer's current asset levels realistically justify continuance. However, while this particular customer derived nearly all his income from capital gains, his asset levels in relevant accounts were extremely low relative to the gains. In fact, his liquid assets were roughly equivalent to the income we wanted to count.
Why is this? This particular customer's business model involved borrowing money from trust accounts during a particular, optimal season each year he would make investments. At the end of the season, he would repay the trust accounts. There is no set of underwriting guidelines in the world that are written to accommodate a situation like this. The customer ran into problems with mortgages for many years. However, I've been able to complete multiple deals for this customer, at multiple times, with multiple investors. It's always involved extensive work to make a good case for our investors to make an exception.
Loss to profit calculation on 800 page tax returns. This particular customer's personal tax returns showed a net loss. However, he was heavily involved in commercial real estate and other businesses owned through an extensive network of dozens of LLC's. We did an extensive amount of work to gather the individual tax returns from every LLC and recalculate his income by adding back depreciation, amortization, and other items we were able to adjust. His income also included Capital Gains from real estate sales, which involved an obstacle similar to the one mentioned above. I was able to get his Jumbo loan approved.
Large deposits circulated through over one hundred bank accounts. This customer had a legitimate business that involved deposits in a huge network of banks. Verifying his assets in his main accounts inevitably lead to over one hundred other accounts. That's because his main account received deposits from these accounts during this particular time. Typically this would require providing two months statements from every account. Through extensive explanation, we were able to get an exception. This was just one element of the customer's difficult profile that required an exception.
Non-warrantable Condo with added problems of low listing price of another unit and very complicated customer profile. Nonwarrantable condos are part of condo associations do not meet traditional guidelines for residential financing. In this case, the condo was non-warrantable due to amount of commercial space in the building. In fact, the building in downtown Milwaukee is about 90% commercial business and parking space in. On top of that, we needed the condo to appraise around $1,200,000 (for a refinance transaction) while another unit of the same size was listed at $750,000 in the same building. Together, these were huge obstacles to overcome. We were able to prepare the customers, through research, to make the best case possible to justify the higher value of her condo unit and distinguish it from the concurrent listing at the far lower price.
Some of the other complicating factors involved a) decreased Schedule C business income (required an exception); b) establishment of new retirement distribution income from IRA in order to meet debt-to-income ratio requirements -- with slightly insufficient balance for the minimal continuance period (required an exception), and c) difficult-to-explain large deposit to a bank account.
We were able to overcome every one of these obstacles, get several exceptions, and complete their deal after a long process. In the end, the customer saved almost $2,000 per month (can you imagine!?) on a refinance through a huge rate reduction and returning to a 30-year payment schedule. The customers desperately needed it!
Decreased income. I've completed many deals for customers who were initially turned down due to decreased self-employment or business income. Typically a decrease of a certain amount results in an initial turn down in underwriting because it undercuts the reliability of their income. Typically we get these done through deeper research into the underlying reasons and future outlook of the business.
Appraisal rebuttal. An appraisal rebuttal happens when the customer wants to dispute an appraised value after the appraisal is complete. I have a unique level of success with appraisal rebuttals. My success rate is about 31% (thirty one percent) when the average is about 2% (two percent). So most of the time I strike out, but you'd rather have a batter with a .310 batting average than .02!
Normally you have almost no chance of rebutting an appraisal because the case for rebuttal is made to the appraiser. The appraiser is the judge and juror of the rebuttal! One case happened in a home that appraised at $1.6 million when we needed $1,750,000. The home was in an odd location in Waukesha County for such a high value home. The appraiser had a problem finding enough comparable sales, and they were all far away. The prices and values of comparable sales had a wide range. This added a higher degree of subjectivity, and we were able to quickly make a case for raising the value, which the appraiser accepted.
Rebuttals are often more important for a customer refinancing (they have more interest in arguing for a higher value). But the ability to research and communicate is equally helpful in purchase transactions when appraisals turn out below the purchase price. In a purchase situation, you definitely want people like this on your team.
Unique properties. Unique properties involve their own set of challenges in residential financing. One customer, for example, owned a home on an 11-acre lot off a busy road in Waukesha County where there were no other high-end homes nearby. This involves special preparation and research in advance of the appraisal, and it also involves identifying an investor who can accommodate this type of situation. This is an example of why correspondents have an advantage by virtue of their access to several investors with various underwriting guidelines rather than a bank with just one set of Jumbo guidelines.
Let's discuss your situation! If you're searching for a home within the next three months, your fist step is to complete the information at Get Started Online.
What's the Rate?
Some people get overly focused on a narrow question, and they loose sight of the bigger picture when it comes to mortgages. For instance, people sometimes lead with the question, "what's the rate?"
The question obviously brings up important considerations -- although it's asked in a way that misunderstands how mortgages work. We'll come back to that in a moment. But here's what's important...
I realize it's not always wise to trust people who are selling you something. I'm the same way. But you might be surprised by the benefit of finding someone trustworthy and asking questions like, "Can you help me explore options that could make sense for me?"
This question could ultimately make a huge difference for your ultimate financial outcome on a Jumbo mortgage -- maybe even $30k, $50k, even $70k, while the previous question could save you a nominal fraction of that at best.
Rates exist on a scales of rate and costs. Even after we identify your exact credit score, the program, down payment, terms, length of rate lock, and the lock date (since rates are moving target), there isn't a single rate.
There are multiple rates, each with different costs. Often, it could range from no closing costs to high costs and several increments between. There are usually 3-4 viable sets of rates and costs to compare.
When you ask the question to pin down a rate, lenders must make many assumptions to answer it. You'll never be able to pin them all down on using the same assumptions to answer the question. Some of the differences could be different margins, but much of the difference will be different assumptions.
With an important transaction like this, it's worth having someone challenge your own assumptions and give you some ideas you would not have thought about yourself. Some of the options may surprise you. For example, check out what I said earlier about 15% down with no PMI. That's just one of a hundred examples that challenge common assumptions. Unless someone led you to that option, you'd never know about it. You need to trust someone enough to help you explore.
Working with a discount mortgage company is not a way to set up a successful home purchase, especially with a Jumbo mortgage. The mortgage business takes a lot of individual and institutional expertise, operational efficiency, and sufficient staffing to provide decent service. Plus, to get your offer accepted in the first place, it's crucial to work with a lender with a strong reputation in the local real estate community.
The purchase process throws many "curve balls" (like property condition issues), and you may need people to bend over backwards and jump through hoops for you at the 11th hour. New companies come and go constantly, and our industry is filled with nightmare stories.
This is most important -- there are really five layers of inter-connected options that together far more deeply impact your long-term outcomes than the rather limited differences in margins between lenders offering the same programs. Here's the bigger picture...
Five Key Layers of Options
These are five key layers of options --
1. What program (Jumbo loans involve many different programs as described above)
2. What downpayment (5%, 10%, 15%, 20%, 25% are most common for Conventional)
3. What term (30, 20, 15, 10 year fixed or 5/1, 7/1, 10/1 ARM)
4. What option on the rate-cost continuum (usually 3-4 viable options)
5. When and how long to lock (15 day, 30 day, 45 day, 60 day, ect.)
After we identify the best Jumbo program for you, we need to zoom in to the next level and pick what options on that program? That involves selecting options on levels 2 - 5 in the list above, and that part of the list alone involves 204 options (note for nerds: not every downpayment level offers all the terms).
Getting the right combination of these answers will have the biggest long-term impact on your financial picture.
A Key Comparison Tool
The best way to compare options is get in touch with us. We provide a comparison tool called a Total Cost Analysis. This tool provides a visual overview that will help to compare the real cost/savings differences between each option side-by-side.
Based on your situation, how long you plan to live in the home, your goals, and your financial picture, we'll walk you through this. We'll help you compare a few options that make the most sense.
Gathering More Information
We want to provide relevant and accurate information, and help you explore multiple options. In order to do that, we need gather some information from you. This will make it more accurate, more relevant, and more connected to your personal situation. Here's the next step...
If you're targeting within the next three months for your purchase, go to Get Started Online so we can learn about you as a starting point.
If you're beyond three months away from wanting to purchase, get in touch through the contact form below for an informal phone call to star the discussion.
Thanks for the Info! What's My Next Step?
If you spent enough time with me already to make it to this point, we should definitely connect!
If you're targeting a purchase beyond three months from now, please use the contact form below to request an informal, free phone consultation. We'll get in touch at our convenience to help you plan and prepare. Early communication will make a positive difference for you!
If you're targeting a purchase date within the next three months, the clock is already ticking! Please get in touch immediately through our Get Started Online page. This will help us get to know the basic elements of your financial situation and give us a starting point to identify appropriate options and have a helpful conversation about your next steps.
Jumbo Mortgage Special Opportunities
Jumbo Mortgages with No PMI Under 20% Down
5% Down Jumbo Mortgage
Jumbo Mortgages for Low-Income, High-Asset Borrowers (Qualify by Assets)
How to Buy Before You Sell:
Special Jumbo mortgage and bridge financing opportunities
I'm beyond three months away from purchasing. But let's schedule a phone convo to help plan and prepare!
I'm outside WI, but your info is top notch! Please put me in touch with a colleague who lends in my area!