From Portland to Lewiston to Bangor, financing a higher end home usually meant coming up with a relatively large down payment. Some buyers don’t like to pull out such a large amount from their investment portfolio and tie up those funds in a real estate transaction.
Mortgage loans that are greater than $453,100 are called “jumbo” loans and historically have required higher down payments when compared to loans below $453,100. Both Fannie Mae and Freddie Mac set these conventional loan limits annually but have remained above 400K for 10 years and were as low as $93,750 as far back as 1980.
Financing a luxury home in Maine, wherever the property is located within the state at many banks ask for a down payment of at least 20 percent. For example, consider a sales price of $1 million. The minimum down payment would then be $200,000. For banks that ask for a minimum of 30 percent down, that equates to $300,000.
That’s a lot of money pulled out of an investment portfolio. Once a down payment is made, that equity is difficult to get to without getting a higher rate home equity line of credit, or HELOC or even selling the home outright. But there’s no need to make such a sizable down payment to finance a luxury home in Maine. There are are some great low down payment options.
There is a special loan program that utilizes a combination of two loans. The goal of this structure is to keep the cash to close as low as possible and maintain a buyer’s liquidity. The structure is commonly referred to as a “piggyback” combo loan because a second mortgage piggybacks on the first.
Let’s look at an example financing a home in say Portland. Let’s look at a home listed at $1 million. With a down payment of just 10 percent of the sales price, not 20 percent, buyers come to the closing with a down payment of $100,000, much lower than the 20+ down most banks require.
The first mortgage would be at 80 percent of the sales price and a second loan at 10 percent. The first mortgage amount is at $800,000 followed by a second mortgage at $100,000 with the remaining amount being the $100,000 down payment. Lenders also commonly refer to such an arrangement as an “80-10-10.”
With two liens, the interest rate on the second mortgage will be slightly higher than the rate on the first. Lenders offset the additional risk taking a subordinate position behind a first mortgage with a higher rate.
Borrowers may also explore a similar structure when the first lien is at 75 percent of the sales price along with a 15 percent second and a 10 percent down payment. Interest rates on the first mortgage using a 75-15-10 may be a bit lower than on an 80-10-10. The second mortgage in this scenario is 15 percent of the $1 million dollar purchase, or $150,000.
Another option is a piggyback arrangement with just a 5 percent down payment. This option has become very popular in 2018 for buyers looking to retain as much liquid savings as possible. This program results in an 80-15-5 with the first lien at 80 percent of the sales price, the second at 15 percent and a down payment of just 5%.
No monthly PMI, fix rate or ARM with no early pre payment penalty. Interest rates on the first mortgage in this scenario will typically be a bit higher compared to a purchase with 10 percent.
Both the 90% and 95% Jumbo mortgage programs have the options of a combo piggyback loan or a single loan option. What loan structure makes the most sense will be determined by many factors like loan amount, down payment, credit, etc.
Applicants should take note of a few things before applying for the 90% and 95% Jumbo loan:
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- All the programs require full documentation. This mean income (W2, Tax returns) and assets needed to qualify.
- $2,000,000 loan limit cap for 95% Jumbo financing.
- $3,000,000 loan limit cap for 90% Jumbo financing.
- Only primary & second homes for max 95 financing.
- Standard single family homes, condo permitted. Vacant raw land, or “build on your own lot” financing NOT permitted. This does not include new construction spec homes being built by home builder.
Speak with an experienced loan officer who can provide you with your financing options. Call us anytime 7 days a week at ph: 800-871-2636 or just submit the Request Contact form at the top of this page for fast service.
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