After the Great Recession, a minimum 20% deposit became the industry standard for jumbo mortgages. Today, lenders are loosening the 20% down payment on jumbos – especially for HENRYs ("High Earners, Not Rich Yet"), who tend to be younger professionals with high credit and income, but not a lot of money.
Jumbo loans are mortgages that exceed conforming loan limits. For 2016, that's 417.000 US dollars in most real estate markets and up to 721.050 U.S. dollars in a few expensive real estate markets, such as Honolulu, Hawaii. These loans fall outside of conforming loan restrictions, so they are not backed by Fannie Mae or Freddie Mac. Because lenders take on more risk with these loans, they typically impose stricter credit requirements and charge higher interest rates to compensate for their financial risk. For more information, see A quick guide to jumbo mortgages and What are your options for big money mortgages?
Income Rich, Cash Poor
The term "HENRY" Refers to a segment of individuals or families who spend between 250.000 and 500.Earning $000 per year, but not having much money to spend. left after paying for taxes, housing costs, education, and the side money for retirement and college savings accounts. Without a lot of cash, these borrowers may not have the money to cover a large down payment – 20% of a $1 million mortgage is $200, 000 after all – something that could prevent them from qualifying for the mortgage they want.
Lenders look beyond cash
While 20% down was the post-recession norm for jumbo mortgages, more and more lenders are willing to approve jumbo loans with only a 10% downgrade. and in some cases even lower – if the borrower has adequate assets and income. A recent story in the Wall Street Journal, for example, highlighted a New York City borrower who had a good credit score and eight years at a well-paying job, but only enough cash for a 10.1% down payment on a million dollars. Home. Even with the low down payment, the borrower was approved for the loan because of his income and values.
What is the loan-to-value ratio?
Lenders pay close attention to the amount of the down payment because it affects the loan-to-value (LTV) ratio – an assessment of credit risk that compares the loan amount to the estimated value of the home. It is calculated by dividing the loan amount by the lower of the home's assessed value or purchase price. The higher the down payment, the lower the LTV (and vice versa).
Here's an example: suppose you're buying a home with 200.000 $. If you put 20% down ($40, 000), the LTV would be 80% ($160, 000 ÷ $200, 000 =. 8). However, if you only put down 10% ($20, 000), the LTV would be 90% ($180, 000 ÷ $200, 000 =.9). Borrowers with low LTVs are considered less risky because they have more equity in their homes, which makes them less of a default risk. And if a borrower ends up defaulting, the lender will have an easier time selling the home in foreclosure for at least as much as it's owed on the mortgage.
The Bottom Line
Newer loan products from banks, credit unions and online lenders offer jumbo mortgages with LTVs of up to 90%, which is good news for HENRYs. To compensate for the additional risk, borrowers usually pay a higher interest rate. For example, the difference in interest rates between a 20% down payment and a 10% down payment could be about one-quarter to three-eighths of one percent, according to Brian Scott Cohen, a private mortgage banker with Wells Fargo in New York. York City.