If you’re shopping for a luxury home in or near Phoenix or Scottsdale, Arizona you’ll find homes listed anywhere from $1 million to those approaching $20 million. For those that are buying a home in the more “modest” jumbo range, say a sales price of around $1-2 million, you’ll have more flexible financing options available to you. When financing a jumbo purchase you do have choices based upon the amount of your down payment.
For example, with a standard 20 percent down payment, the maximum loan limit is generally $3 million. For a down payment of 10 percent, the maximum loan amount is $2.5 million. Approved buyers with 5% down payment have Jumbo options up to 1.5 mil loan amounts. Depending upon the loan program, minimum required credit scores range from 700 to 720. Note, all of these options apply strictly to primary owner-occupied homes. Vacation homes generally require another 5% additional down payment. Read more about 95% Jumbo requirements here.
So how much should you put down on a house? Once you make a down payment on a home although it’s considered your equity, it’s not liquid. The best thing is to speak with your financial planner to determine where to pull your funds. Pulling funds out of an investment account means that money is not working for you any longer and won’t until it’s replaced. Consider this before you decide how much to put down is appropriate for your personal situation.
Besides the loan amount, you may want to start out with how much you want to borrow? Doing this will allow you to shop for the home based upon what the loan amount will be and you can decide how much you want to put down. If you want a loan amount of $1.5 million you can buy a $3 million dollar home with a 50 percent down payment. Be sure to also pay attention to what you want your monthly payments to be each month – with taxes and insurance. Eligible buyers can finance up to 95%, but whatever you decide ultimately it comes down to your loan amount and qualifying criteria.
Your monthly payments will of course be based upon both the term of your loan as well as the interest rate. If you are looking for a longer term commitment, a fixed interest rate may be the best choice given the low rate environment we see today. Most jumbo fixed rate loans are offered in both 15 and 30 year terms. The 30 year term will provide lower monthly payments compared to a shorter term loan but in the end you’ll pay much more in long term interest to the lender. A 15 year loan is paid off sooner so there will be less interest paid over the term of the loan yet sometimes the difference in payments is so great the 30 year term ends up being the preferred choice.
For example, take a $1.5 million fixed rate loan over 30 years. If the interest rate is say 4.50% the payment is $7,600 per month whereas just changing the term to 15 years and nothing else, the payment rises to around $11,400. That’s quite a difference. However, because the loan does not have any sort of a prepayment penalty, borrowers can take out the 30 year loan keeping the required monthly payment lower while still having the ability to pay down the mortgage as if it were a 15 year loan. All extra payments past the required payment goes directly toward the loan balance. If this strategy is followed, borrowers can elect to pay the mortgage either as a 30 or 15 year at their choosing.
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