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How to Qualify for a Jumbo loan after a financial hardship

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.

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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.

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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

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  • 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.

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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.

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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.

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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.

About Your Expert

Scott Schang

As a 19 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • jaren Nwokedi says:

    I filed a chapter 13 reorganization back in 2012 and was discharged in 4/ 2014. We are trying to buy a new home and need to find the best possible lender to work with. Please advise.

    • A Chapter 13 discharged 4 years ago is definitely possible, but it’s not always easy to find someone that can do it. For instance, in California, I have one local bank, and one local credit union that would consider this scenario.

      These types of loans are called Portfolio loans. All that really means is that it doesn’t follow conventional or government underwriting guidelines, and that the investor that offers the loan will most likely hold on to the paper and service the loan themselves.

      There are of course many other factors that will determine what the best option is for your situation. The primary factors being credit score, down payment, debt to income ratio and reserves.

      I can definitely help get you pointed in the right direction here. Shoot me an email to scott@findmywayhome.com and let me know what Sate you’re in. I can introduce you to someone that I know and trust that can help you the rest of the way.

      Hope this helps?

  • Beau Williams says:

    Hi, I am looking for a conventional mortgage after having a foreclosure 5 years ago. My mortgage broker says I have to wait 7 years. Do you know of anyone who can help.

    • Hi Beau,

      Was the mortgage included in a bankruptcy by any chance? If not, Conventional financing is a 7 year wait. I would recommend using a FHA loan now, if possible, and refinance into a conventional loan once your waiting period is up. Another option would be a portfolio loan. We have had success getting exceptions for foreclosures if you compensating factors like high credit scores, reserves, and a large down payment. A portfolio loan under the right circumstances is not going to be more expensive than traditional financing, but they tend to be 5/1 ARM loans. I guess the answer really is, it depends.

      I can definitely try to help you find a solution here. If you want to email me directly to scott@findmywayhome.com, and give me a little more detail, like what State, loan amount, down payment, credit score, and circumstances around the foreclosure, and I’ll get you pointed in the right direction.

      Hope this helps?

  • Lani says:

    Hello Scott, I went through divorce in 2009. We owned four properties that were upside down. Of course my ex did not fight for any of the properties. He filed Chapter 7 right away and left the country to go to his home country. We had two small children so eventually I filed Chapter 7 that was discharged in 2012. I short sold a property in 2010 and I still owned the three properties so in July 2015 I filed Chapter 13. I have been paying at 100% for 2.5 years. While in the plan I modified my main home about 5 months ago. I recently short sold an investment property in November and I am about to short sale the last property now, however I am not on the mortgage. My Chapter 13 will be complete and discharged earlier per my attorney. Most likely March. I’m over 700 credit score and make over 6 figures. I’m looking for a jumbo loan and creativity.

    • Hi Lani,
      It’s very interesting that you were given the advice to file a Chapter 13 after the mortgages were already discharged in 2012 under the Chapter 7. You were not liable for those mortgages and could have walked away at that time. Regardless, you do have options now, the terms would just not be quite as good if a different path were taken.

      Shoot me an email to scott@findmywayhome.com – let me know what State you’re in, and let’s see what options might be available. What I can tell you is that it’s not going to pretty, but it will get you into a home, and start you on the path to refinancing into a much better loan in the future.

      Hope this helps?

  • Kip says:

    Thanks in advance for the information, Scott. House went into foreclosure six years ago during divorce (bank that originally held the mortgage went under, incompetent lawyers, etc.) is finally culminating in a ‘consent foreclosure’ (Illinois). However, I was discharged under Chapter 7 last September (including mortgage). Will the foreclosure still show up on my CR? If so, the clock still starts with the Ch. 7 discharge, right? And I read conflicting reports on wait time for a jumbo. My current wife (she has impeccable credit) and I have household income of 200k, my score is already back into low 700s, I can show hardship (divorce). Will I have to wait 4 years or will I be able to get a jumbo in 2?

    • Hi Kip,

      This is tricky. Jumbo guidelines are going to typically require a minimum 7 year wait from the date of the foreclosure date, and 4 years from the bankruptcy discharge.

      If you can use Conventional financing, and the foreclosure took place after the discharge of the bankruptcy, your wait is 4 years from the BK discharge. If the foreclosure occurred prior to the bankruptcy, there is a 7 year wait from the foreclosure.

      Divorce is rarely considered an extenuating circumstance for conventional financing, and would most likely not be considered for Jumbo.

      There are portfolio loan programs that would potentially allow you to get into a home sooner than the above timelines. Portfolio loans will carry a higher rate, closing costs, and down payment requirement.

      Are you trying to buy in IL? If so, I have a very creative lender friend that might be able to narrow down these options, and may even have access to other programs that can help.

      If you would like an introduction, shoot me an email to Scott@findmywayhome.com and I can connect you.

      Hope this helps?

  • Pam says:

    Hello – First of all, great info on your website! My husband and I will be two years’ post Chapter 13 discharge in October 2017 and recently relocated to Prior Lake, MN. We’d like to purchase a jumbo-priced home (pre-qualified for FHA but not enough cash on hand to bridge FHA maximum financing of the low $300s with a jumbo priced home) but so far have been unable to find anyone with a portfolio product or piggyback financing option.
    Our FICO scores are right around 700 (I’m at 695; my husband 703). Any recommendations on possible lenders in the Scott or Dakota County, MN, area? We’ve established good credit post BK and have sufficient income/assets…just need to find a lender. Thanks!

    • Hi Pam, thank you for the kind words. 2 years from the discharge of a Chapter 13, you can use conventional financing up to $417,000. Would that work?

      There are piggyback loans that can be used with the conventional loan limit as long as you have a 10% down payment. This is called a 80/10/10.

      I can introduce you to a lender that has experience with these guidelines.

      If you would like an introduction, shoot me an email to scott@findmywayhome.com with the best contact information for you.

      Hope this helps?

  • Rodney says:

    Hello Scott-
    My wife is post Bankruptcy with a 700+ score 200k in verified income in GA. The BK was really a shell but it’s showing up oin her credit are there any products available to assist in getting a jumbo on a 930k purchase with 15-20% down?

    • Hi Rodney,

      The bankruptcy at 4 years shouldn’t be an issue, did the foreclosure ever take place? There are definitely loan programs that would work for you, the only question is, what would be the “best” option.

      A portfolio is always available. Depending on where you’re buying, there could be several options.

      Did the foreclosure ever take place? If not, what happened to the property? What State/County are you buying in?

  • Dean Rauscher says:

    Hi Scott – great article
    My wife and I have a Jumbo Cal Vet loan last May @4.125% in Ramona CA, owe 703K, home value about 800K. We have a discharged BK January 2014. Annual salary 200K, Fico 670 -690. Max California Jumbo loan for San Diego Co. 612K. Quicken loan said I need 7 years after BK. Any contacts that might help us move forward? Any way to piggy back?
    Thanks,

    • Hi Dean,

      Thank you for the kind words. You’re talking about a high balance conventional loan up to $612k. The piggy back option would require 4 years from the BK if it was a Chapter 7. Was it a ch7 bk?

      If the mortgage was included in the BK, and the foreclosure took place after the discharge of the BK, the waiting period is 4 years form the BK discharge if it’s a Chapter 7, and 2 years from discharge if it was a Chapter 13.

      My only concern would be that your Cal Vet loan at 4.125% is going to be hard to beat. Rates have gone up significantly since last May.

      I can definitely help introduce you to someone that can help in California. I think the first thing we need to figure out is if refinancing is going to benefit you in any way. You would not be able to lower the interest rate, so unless you have a need to take out equity, I would probably say to keep what you’ve got.

      If you have additional questions, or would like to speak to someone about other options, shoot me an email to scott@findmywayhome.com

      Hope this helps?

  • Randy says:

    Question… I am 3 1/2 years post short sale. It was a rental… I got divorced.. lots of cash going out and my ex wouldn’t pay. Anyway… I’m looking to purchase using a jumbo loan. I can use my VA benefit, but at a cost of about 200 grand down for this house. Are there any other options? Piggyback, 10 or 15% down jumbo? Thanks!

    • Hi Randy,

      If you’re in California, I have an investor that will give exceptions on short sales if you have compensating factors. There are also portfolio loans that have a little higher interest rate and fees, but if you look at the math, and consider the fact that you’re only paying that premium until you can get into a better loan, a lot of times it makes sense.

      Shoot me an email to scott@findmywayhome.com and let me know where you’re trying to buy. I have a pretty big network of lender friends that specialize in creative financing solutions. I’ll do my best to point you in the right direction.

      Hope this helps?

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