Avoiding jumbo loans– 2 conforming loans mortgage option?

[4spotentialbuyer]

As the jumbo rates keep climbing up and almost any home in San Diego requires a jumbo loan, any thoughts on using 2 conforming loans to avoid the jumbo loans? What would be the closing costs, and monthly payments of getting 2 loans to buy a 700K loan vs getting a jumbo loan for a 700K loan with 20% down? I think the blended rate for 2 conforming loans currently would be 7.142% assuming a first mortgage $417,000.00 at 6.500% and a second mortgage $143,999.00 at 9.000%. I believe these would be the current rates for such a loan. Any thoughts would be much appreciated, especially by experts such as HLS. Thanks in advance.

[JWM in SD]

Well, well, looks who’s back.

[4spotentialbuyer]

I never left…I have been reading the new posts and trying to learn more about the housing market.

[HLS]

4S… In the above example, your blended rate is correct.
The closing costs wouldn’t be much higher to get a 1st and 2nd, and this would probably be the best way to go today.
(1st at $417K & 2nd at $143K)

The key is what you can qualify for. For strong borrowers, 30 YR Fixed Fully Amortized are 6% or below today, with the option to buy down even lower.
A 2nd is available closer to 8%, (also worth considering buying down)
This would bring the blended fixed rate closer to 6.50% for a fixed. A solid jumbo today will be closer to 7%.

Jumbo rates DO NOT keep climbing, they actually came down last week for strong borrowers. Money is available.
Even with a good credit score and 20% down, there are still underwriting isues that pop up, no differently than 60 days ago.

Please understand that it’s impossible for anyone to quote accurate rates without knowing what you actually qualify for.
Rates that are flippantly quoted is what leads to misunderstandings.

When it comes to “closing costs” The only fee that a broker is in control of is their origination/broker fees and what they do with any rebate that comes from the lender.

ALL other costs, Title & Escrow fees, Lender Underwriting and prorations for interest and impound account (if necessary) don’t change by the mortgage originator, it just depends on which title & escrow you use.

Without knowing if seller is contributing to closing costs or exactly what borrower will be paying for, it’s another very easy way to be misled when asking for a quote.

A “Good Faith Estimate” is nothing more than a compliance issue and does not have to be accurate or disclose every cost/fee. Another misconception.

You should also always have the option to pay a higher rate and monthly payment to offset your closing costs IF YOU CHOOSE. That’s how the “no cost loan” works, but not explained as such.

[4spotentialbuyer]

Thanks HLS…..this is good to keep in mind as I had never thought of getting 2 loans such as this one to avoid jumbo loan…never had to think about it in the last few years…We sold our home recently (it had been on the market for a long time) and are waiting for the prices to drop further before buying. In the meantime, we wanted to learn more about our options so when we do buy, we will be able to ask the mortgage broker all of our options. We want to buy a new home so most likely will have to go with the broker the builder is associated with in order to maximize on the builder incentives. I thought it would be best to know my options as the builder’s broker may not provide as many choices for me. I think we should be able to get a good loan as our credit scores are over 700, 20% down, stable jobs, 401Ks, etc.

Although home prices are going down, I think most people buying a house in CA will still need a jumbo, so I hope most are exploring their options. Thank you for your help.

[PadreBrian]

If someone did get 2 loans and the house foreclosed on. In California, would both debts be forgiven, or just the first?

[HLS]

Not just California,

There would be 2 separate deeds. If you continue paying on the 1st, but not on the 2nd, it would be up to the 2nd note holder to foreclose, take possession, and they would have to keep up the payments on the 1st, to protect their position, which may not be worth doing.
If they didn’t foreclose, the lien would just remain on the property until something was negotiated “someday”

If the borrower stopped making payments on the 1st and 2nd, the foreclosure would be initiated by the 1st, and the 2nd may end up with nothing.

This does not address 1099 issues regarding debt relief, recourse or non-recourse debt, or the possibility of a deficiency judgment.

[PadreBrian]

Thank you!

btw, is the 2nd a recourse loan, and the primary a non-recourse?

[(former)FormerSanDiegan]

If the second was used to initially purchase the property, then it is a non-recourse loan because it is acquisition debt.

[HLS]

In general, loans that are originated for a purchase are NON-recourse debt. (1st and 2nds)

Loans that are refinances are recourse debt. It DOESN’T matter if no cash is taken out, it’s still a refi.

If your purchase 2nd is a HELOC, it can get tricky.

PLEASE consult a tax professional if you are involved in a Cancellation Of Debt (COD) situation…

Link to details: http://www.irs.gov/faqs/faq4-4.html

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