Jumbo Loan Options After Financial Hardship
A Jumbo loan is typically much less flexible than traditional financing like Conventional or FHA if you’ve had a financial hardship in the past 5-7 years.
Homebuyers trying to buy in higher cost areas after a bankruptcy, foreclosure, or short sale, are often told that there are no options for at least 7 years.
There are some lenders that will allow you to buy 4 years after a bankruptcy, short sale, or deed in lieu of foreclosure. Unfortunately, most Jumbo lenders will require a 7 year wait after a foreclosure.
We are beginning to see more investors rolling out non-prime jumbo loan options. With between a 10- 20% down payment and high credit scores, it’s possible to use a higher rate, higher cost jumbo mortgage to purchase your next home sooner.
There is yet another option that goes mostly overlooked. With the growing popularity of HECOC and fully amortized 2nd mortgages, piggyback mortgages have stepped up to fill in the void between traditional financing, and jumbo loan guidelines.
Piggyback Financing Options
When you use a first and second mortgage together on one transaction, it’s called a piggyback loan. Piggybacks are often used when conventional, or FHA loan limits will leave you with a higher down payment than what you have available.
Use a second mortgage to bridge the down payment gap between what you have, and what you need. Available second mortgages can go to a maximum of 89.99% Loan to Value.
Second Mortgage Options typically fall into two categories, a Home Equity Line of Credit (HELOC), or a fully amortized adjustable, or fixed rate second mortgage loan. Expect interest rates to be higher on a second mortgage.
HELOC – A Home Equity Line of Credit
- Open Line of Credit – When you pay down the balance, you can charge it back up to the original line limit if needed.
- Interest Only Payment – For the first 10 years of a home equity line of credit, you are only required to pay interest.
- Flexible Payments – Unlike your fixed rate, fully amortized first mortgage, your payment is based on your balance.
Fully Amortized Second Mortgage
- Fixed or Adjustable Rate Mortgage – ARM mortgages typically offer lower interest rates than fixed rate loans.
- Longer Payment Term – Fully amortized second mortgages are available up to 30 year terms.
- Fixed Payments – Fixed rate mortgage payments are the same for the entire term of the loan. No surprises.
Put the majority of your investment into a conventional limit loan, you take advantage of the lowest rates and best terms available on the larger first mortgage. Your blended rate between the first and second mortgage is still much lower than other single loan options.
Another popular use of a piggyback loan structure is to avoid mortgage insurance. Weigh piggyback options against LPMI (lender paid mortgage insurance), and other mortgage insurance options to see which option will best meet your family’s goals.
In a pinch, there are also portfolio second mortgages that will go as low as a 500 credit score, and up to 85% loan to value. Higher credit scores will result in lower down payment requirements and interest rates.
Jumbo Loan 2 Years After Bankruptcy
FHA financing allows you to buy again only 2 years from the discharge of a Chapter 7, and 1 year from the discharge of a Chapter 13. Use a first mortgage up to the available loan limit for your County, and use the best second mortgage option that you qualify for.
If you have served in the armed forces, and are eligible for VA home loan benefits, here is some much needed great news for you. VA financing allows you to buy in as little as 2 years from the discharge of a bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure. Unfortunately, each of these events starts a new 2 year waiting period if you have multiple hardships.
Using a second mortgage behind a VA first mortgage can help you bridge the downpayment gap for larger loan limits.
Jumbo Loan 4 Years After Foreclosure
FHA financing will allow you to buy after a foreclosure, short sale, or deed in lieu of foreclosure after only 3 years. This option is often times still better than the jumbo mortgage loans that are available after only 4 years, and it’s available after only 3 years! You will need a higher credit score to have the lowest down payment under this scenario.
Using Conventional financing, Fannie Mae guidelines, you can buy again after 4 years from the discharge of a Chapter 7 bankruptcy, regardless of foreclosure, short sale or deed in lieu of foreclosure that occurred on any mortgage discharged through bankruptcy.
If you did not file for bankruptcy, and FHA loan limits are too low in your County, Conventional financing will allow you to buy again 4 years after a short sale, or deed in lieu of foreclosure. A foreclosure on a mortgage that is not discharged through bankruptcy will result in a 7 year waiting period, so FHA is probably the next best option until you can refinance.
Common Creative Financing Challenges
Hopefully, you are here because you’ve anticipated this challenge, and are doing your research. Unfortunately, that’s probably not the case. You most likely found this article because you’ve been trying for months to find a solution.
The solutions presented here have many restrictions, and requires access to a variety of flexible option second mortgages. If you are being told no, you may want to keep looking.
Many lenders do not have experience helping homebuyers that have experienced a financial hardship in the past, so don’t be surprised if it takes a couple of tries to find someone that can help.
If you have a challenging situation, or have been turned down recently, please leave your questions or scenarios below in the comment section, and I will do my best to help, or introduce you to someone that can.