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321-239-2781NMLS # 1922428
321-239-2781NMLS # 1922428
English EN Portuguese PT Spanish ES

In this series of guides (“Lending in the Time of COVID-19”), we explore your mortgage loan options, despite the COVID-19 pandemic.  Creative and flexible loan solutions are still available, and we continue to monitor the situation and keep our finger on the pulse as to who is lending.  To access all the volumes in this series, go to our “Series” page here.

“Go big or go home!” This motivational saying encourages us to be bold and daring. Otherwise, we might as well go home and do nothing.

This saying applies with equal force in the lending world. Individuals looking to purchase or refinance a residential property shouldn’t be discouraged if they can’t get approved for a mortgage loan.

Sometimes, it just takes finding the right lender with the flexibility to offer creative and innovative loan products.

Despite the coronavirus pandemic, there are still bold and daring loan programs out there.

Lenders may have paused their non-QM loans due to COVID-19, but they have recently become available again.** One particular type of non-QM loan — jumbo and super-jumbo loans — are back in full force. Jumbo loans typically start at $510,400, and super-jumbo loans range from $5 to $30 million.

For instance, some jumbo loan programs offer 100% loan-to-value (LTV). In other words, the down payment on a home purchase would be zero.

Also, these programs are especially helpful for self-employed or 1099 borrowers. Instead of tax returns, W2s, and paystubs, the borrower can qualify based on alternative documentation.

In other words, jumbo loans aren’t just back. They are back with creative twists.

Curiosity piqued?

Here, we focus on three creative jumbo mortgage loan programs available today.

So, let’s dive right in and “go jumbo or go home!”

Creative Jumbo Program #1: Cross-Collateralization

Cross collateral loan

Secure your jumbo loan by cross-collateralizing the subject property with a property you already own.

Who is this program for?

  • This program is meant for borrowers who already own other properties that can be used as additional collateral to secure an LTV up to 100% and avoid having to make any down payment.
  • In other words, the borrower’s other property will be “crossed” with the subject property, hence the term “cross-collateralization.”

How does this program work?

  • Jane already owns Property A and the remaining amount due on the loan for Property A is relatively low. She wants to purchase Property B, but she doesn’t want to make any down payment.
  • How can she pay off the loan on Property A and also purchase Property B without a down payment?
  • She can cross-collateralize Property A and Property B by pledging both properties as collateral. The lender will take a first lien position on both properties. In return, the lender gives Jane the loan amount necessary to pay off the Property A loan and to purchase Property B at 100% LTV.

What are some of the other highlights of this program?

  • This program is available for purchase transactions as well as refinances.
  • 100% financing is only available if (1) the transaction is a purchase, not a refinance; (2) the borrower provides reserves equal to 12 months of mortgage payments; and (3) no gift funds are part of the transaction.
  • Otherwise, the minimum down payments are generally 10% for owner-occupied properties, and 20% for second home or investment properties.
  • Primary residences, second homes, and investment properties may be crossed with the subject.
  • The second piece of real estate must be owned by the borrower.

Creative Jumbo Program #2: Pledged Assets

Pledged asset loan

Qualify for your jumbo loan by pledging your cash, stocks, bonds or other assets.

Who is this program for?

  • This program works for high net worth individuals who have substantial liquid assets to pledge to the lender (cash, stocks, bonds, CDs, savings accounts, mutual funds) to secure up to 90% LTV.
  • It allows borrowers to achieve high LTVs without having to liquidate their accounts and incur capital gains implications.

How does this program work?

  • John went under contract to purchase Property A for $1 million.
  • He would like 90% LTV so that his down payment would only be $100,000.
  • In other words, he needs a loan amount of $900,000.
  • However, under the lender’s guidelines, he only qualifies for 70% LTV, which would be $700,000.
  • In order to get the lender to loan him $900,000, John needs to pledge some of his assets to the lender to make up for the $200,000 deficit.
  • If John wants to pledge cash, he would need to pledge 100% of the deficit, or $200,000 in cash.
  • If John wants to pledge non-cash assets (such as stocks), he would need to pledge 200% of the deficit, or $400,000 worth of stocks.
  • Throughout the term of the loan, John must set aside the pledged amount in a special account and maintain the required balance.

What are some of the other highlights of this program?

  • This program is available for purchase transactions as well as refinances.
  • The obligor (the party who pledges the assets) does not have to be the borrower, nor does the obligor need to have a family relation to the borrower.
  • Primary residences, second homes, and investment properties are eligible.
  • Eligible assets include cash, stocks, bonds, CDs, savings accounts, and mutual funds.
  • Eligible assets do not include assets bought on margin, options, warrants, IRA assets, 401K assets, annuities, insurance benefits, and 529 or other education savings plans.

Creative Jumbo Program #3: Asset Depletion

Asset dissipation loan

The lender will qualify you for a jumbo loan by calculating your effective income based on your liquid assets.

Who is this program for?

  • This program works for individuals who have a high net worth, but little to no monthly income.
  • “Asset depletion” is a method of calculating a monthly income stream based on the borrower’s assets.
  • Despite its name, this program doesn’t require the borrower to actually “deplete” or liquidate any assets. “Asset depletion” is an underwriting tool only.
  • In other words, this program works great for borrowers who were previously turned down by banks for having debt-to-income (DTI) ratios that were considered too high.

How does this program work?

  • Jesse wants to purchase Property A but he is currently unemployed.
  • However, he has at least $500,000 in checking accounts and mutual funds.
  • The lender will conduct an asset depletion calculation to figure out what Jesse’s effective monthly income stream would be.
  • Specifically, the lender would take 100% of the value of Jesse’s assets ($500,000), amortized over 30 years or until Jesse turns 85 with a minimum of 10 years. The prevailing interest rate (currently 5%) is used for the rate of return.
  • If the monthly income streams are high enough, Jesse qualifies for the loan to purchase Property A.

What are some of the other highlights of this program?

  • This program is available for purchase transactions as well as refinances.
  • Assets must be liquid, held in a U.S. bank, and 100% owned by the borrower.
  • The borrower must provide reserves equal to 12 months of principal, interest, taxes, insurance, and any association fees.
  • Eligible assets include checking accounts, savings accounts, mutual funds, trusts, public stocks, CDs, and cash value of life insurance.
  • Eligible assets do not include annuities and privately held stock.
  • Retirement accounts are not eligible unless the borrower is at least 59 1/2 years of age.
  • Business funds (excluding assets in an operating account) may be utilized on an exception basis if the borrower is the 100% owner of the business and other requirements are met.

Parting Words

Providing tax returns, W2s, and paystubs isn’t the only available avenue to purchase or refinance a home.

As the above three innovative loan solutions demonstrate, borrowers can use other items at their disposal to qualify for a loan. They can use other real estate owned. Or they can use their other assets — cash, checking accounts, savings accounts, mutual funds, trusts, public stocks, bonds, CDs, and cash value of life insurance — to secure the jumbo loan they need.

It’s possible to find the lenders with the creativity and flexibility to get jumbo loans closed.

Don’t miss out on these great opportunities. Otherwise, “go jumbo or go home!”

**Non-QM stands for Non-Qualified Mortgage, which simply means it does not fit the definition of a Qualified Mortgage (QM) under the Consumer Financial Protection Bureau (CFPB) guidelines. Every loan made today is subject to the CFPB’s Ability-to-Repay rule; non-QM loans just have a different way to get there.

Please contact us at 321-239-2781 or david@davidakrebs.com or by clicking here to learn more about these innovative jumbo loans, including interest rates, whether non-U.S. citizens (foreign nationals, non-permanent resident aliens, and permanent resident aliens) are eligible, and other details.

 

Continue exploring our “Lending in the Time of COVID-19” series:

NEXT: “Creative home loan programs for self-employed borrowers” (Volume 2)

To access all the volumes in this series, go to our “Series” page here.