I was talking to a client this past month and they mentioned they wanted to stay clear of a JUMBO loan. We discussed some strategies that I have seen over my years in the business that have proven helpful to some in these situations.
- Consider borrowing from your 401K. Most 401Ks allow one to borrow from the plan. Typically, there are no upfront cost and you’d be repaying yourself. It usually takes about 21 days to get the $$$ in your hands. All you usually need to qualify is a copy of your purchase agreement and a preliminary settlement statement (from the closing agent) on the new house and you’re good to go
- Do a Conventional/Conforming 1st mortgage and couple it with a simultaneous second mortgage or HELOC (Home Equity Line of Credit) to fill the gap. Then once your current house sells or you get your bonus or whatever, you can pay off the second / HELOC. Typical costs of a HELOC are minimal, the rate is good, and repayment is often interest only. Interest is usually deductible. Not all mortgage lenders will have these products, though you can oftentimes coordinate with a bank or credit union to do that piece of the transaction
- Plan on doing a Conventional/Conforming 1st mortgage on your purchase. Take out a HELOC on your current residence now. This approach does not affect your current 1st mortgage. Again, the upfront cost is minimal, interest rate is good, and repayment is often interest Interest may not be deductible but you should only have this for a few months anyway. Going this route gives you your equity in cash to work with as you go into the new transaction. It is important to know that this MUST be completed prior to your house being listed or put on the market. It’s about impossible to find a lender who will make that loan once you’ve listed it or the terms will be far inferior. Turnaround time on this is probably 1-3 weeks. Different lenders work these differently and with various timelines.
- Some combination of the above.
Hopefully this gave you some food for thought on how to avoid that Jumbo Loan. When you are ready, give me a call or text at (317) 625-0655. I’d be happy to jump on a call to work through these strategies and determine what is best for your situation. Until then, make it a great day! – Bob