Jumbo Mortgage Loans – Don't Let the Down Payment Fool You!

Jumbo mortgage loans are back, but don't let the down payment requirement fool you. They still have reserve requirements and other fun surprises that can create issues. Learn what they are and how to avoid them.
- Wallick & Volk Mortgage Bank - Jeff McGinnis, December 21st, 2011

Published December 21st, 2011

Jumbo Mortgage Loans – Don't Let the Down Payment Fool You!

As a professional mortgage banker since 1997 in the Seattle and Bellevue, WA area, I’ve had the unique experience of watching jumbo mortgage loans go through waves of popularity in the last 5-7 years.  To say the least over the last 3 years jumbo mortgage loans have been the most difficult loans to find and put together compared to their FHA, VA, and conventional mortgage counterparts.

Defining a Jumbo Loan

The good news is they are back, they are reasonably priced, and the interest rates are good.  Before I review the issues the reader needs to be aware of, let's define a true jumbo mortgage.  In the Seattle & Bellevue MSA, conventional & FHA mortgages will lend up to a loan amount of $506,000.  There is a conforming jumbo loan that has a loan amount range of $417,001 - $506,000. So for this article’s purpose, I am referring to loan amounts of greater than $506,000.

Down Payments

In general jumbo loans require a 20% or more down payment.   There are some jumbo programs that allow for as little as 10% down, but don't let the down payment requirement fool you.  Many times there is an additional requirement on jumbo loans called “reserve requirements”.  This means that after closing, a borrower needs to have a certain number of payments in the bank after the down payment and closing costs are accounted for. 

 Reserve Requirements

The reserve requirement is defined as how much money is left over in the borrower's bank account after closing.  The amount of money needed for the requirement can range from 6-12 months of total monthly payments for the new mortgage.  The requirements can increase depending if the borrower owns additional properties.  For example:  The borrower may have investment properties or second homes which would increase the amount of reserve requirement.  The reserve requirements may increase even further if any of the properties are underwater. 

 Sometimes the bank or investor of the loan will require the reserves come from specific types of accounts.  It’s important to know which accounts are eligible for the reserve requirements.  Will the investor accept a 401k or other retirement accounts or will they require the funds to be in a liquid account like a checking or savings account?  Sound confusing?  It is.  But with a little preparation and planning a borrower can head off these types of issues far in advance of making an offer on a property.

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About the Author

Jeff McGinnis
MLO – 279369 CL-142878
Direct: 206-283-5626 (LOAN)
Fax: 425-818-7601
Wallick & Volk Mortgage Bank – Home of the 21 Day Purchase Xpress
600 108th Ave NE, Suite 110
Bellevue, WA 98004