Jumbo Home Loan after BK, Foreclosure, Short Sale or Deed in Lieu?
Jumbo Loan Woes
There are many areas in the Country that require a Jumbo home loan if you want to be a homeowner in the neighborhood you want to live in.
This is primarily due to crazy inflated home prices in the more desirable areas of the Country.
Fannie Mae has set the conforming loan limit at $417,000 across the Country, with higher conforming loan limits allowed in higher cost Counties throughout the Country.
When you move into Jumbo home loan territory, the down payment requirements, reserve requirements, and debt to income ratio restrictions become more conservative than conforming underwriting guidelines.
The most strict underwriting guideline that Jumbo financing carries is the waiting periods after a past bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure.
Jumbo Waiting Periods
Following are the most common waiting periods for major banks, and most lenders. These lenders offer the lowest interest rates, and the most strict underwriting guidelines of all of the Jumbo home loan options.
- Buy after Foreclosure – 7 Years
- Buy after Short Sale – 7 Years
- Buyer after Bankruptcy – 7 Years
- Buy after Deed in Lieu – 7 Years
- Buy after Loan Modification – 7 Years
- Extenuating Circumstances Exception – 5 Years
NOTE: These waiting periods do not reflect the guidelines of all lenders. These numbers show one of the most strict, and lowest rate options available in the market. There are exceptions.
Shorter Wait after Short Sale?
I have heard of major depository investors that are allowing shorter waiting periods of 4 to 5 years after a short sale or deed in lieu of foreclosure.
You can expect a minimum of 6 months reserves, as high as 18 months. Also expect debt to income ratios to not exceed 43%.
Jumbo Home Loan Alternatives
There are several investors that offer competitive alternatives to Jumbo loans.
Let’s start with a product that is known as Alt-Jumbo. This basically stands for alternative jumbo home loan guidelines.
Alt-Jumbo loans often afford the following flexibilities:
- Higher debt to income ratios (50% DTI is not unusual)
- Lower credit scores (below 700)
- Shorter waiting periods after a bankruptcy, foreclosure, short sale or deed in lieu
These programs range from having slightly above market interest rates, to moderately above market interest rates and fees.
Portfolio Jumbo Home Loan Options
Portfolio is a name for loans that are not quite as good of rates and terms as Jumbo, or Alt-Jumbo options. A portfolio loan literally means that the investor is going to keep the loan in their portfolio of investments.
Everyone else is sending these loans to an investor like this. As an investor lending their own money, they can make their own rules.
Portfolio loan options are available for Jumbo loans in as little as 1 day from bankruptcy, short sale, foreclosure, or deed in lieu.
These are great short term options that will give you the opportunity to take advantage of the tax, savings, and equity benefits of homeownership, at an only slightly higher cost.
When you consider the “premium”, or additional cost of this type of loan is the difference between the best available rate, and the rate you have to take.
You might be surprised that those two or three percentage points really do not equate to much of an increase in your monthly payment.
If the math makes sense, use one of these loans to bridge the time until you can qualify for a better program.
Creative Piggyback Options
There are now several investors that offer a first/second combination loans, called a “Piggyback” loan.
By combining the two loans, you can do a first mortgage to the maximum conventional loan limit, or 80% loan to value, then go beyond that using the second mortgage.
In my adopted State of California, we have counties with a conventional loan limit of $625,500 in high cost Counties like Orange, Los Angeles.
Real World Experience
We have recently seen the emergence of piggyback loan options that offer anywhere from 20 year fixed, fully amortized rates on the second mortgage, to a home equity line of credit that offers an interest only payment for the first 10 years.
Using the conventional guideline that allows you to use the bankruptcy waiting period and ignore any subsequent foreclosure, you can bypass the mandatory 7 year waiting period by using a first mortgage up to the conventional max, then a second up to a maximum of 89.99% of the appraised value.
This strategy can allow you to buy years sooner than if you had to wait to meet Jumbo guidelines for waiting periods after a financial hardship.
I have also used a stand alone portfolio second mortgage to take cash out on a property where the first mortgage was already at the limit for the conventional first.
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