Do Jumbo Loans Have PMI? What You Need To Know

Purchasing a high-priced home often requires getting a jumbo loan. Jumbo loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac, allowing borrowers to finance expensive properties. But unlike conventional loans, jumbo loans have flexible guidelines set by lenders. One key question buyers ask is – do jumbo loans require private mortgage insurance (PMI)?

What Is Private Mortgage Insurance?

Before diving into PMI requirements, let’s review what PMI is. PMI is an insurance policy that protects the lender if the borrower defaults on their loan. It covers losses if the borrower can’t pay or files for bankruptcy.

Lenders require PMI when borrowers make a down payment of less than 20% The reason is that loans with less than 20% down carry more risk for lenders. PMI offsets that risk by paying the lender a portion of the loan balance if the borrower defaults

On conventional loans, PMI is nearly always mandatory with less than 20% down. But on jumbo loans, PMI requirements vary more widely.

Jumbo Loan Down Payments And PMI

Jumbo loans traditionally required down payments of 20-30%. But today, many lenders offer jumbo loans with as little as 5-10% down

So do these low down payment jumbo loans require PMI?

In many cases, yes. Expect to pay PMI if your jumbo loan down payment is under 20%, just like with conventional mortgages. PMI on a jumbo loan can be quite expensive too. For instance, PMI may cost over $1,000 per month on a $2 million jumbo loan with 10% down.

However, some jumbo lenders allow low down payments without requiring PMI. For example, some lenders offer jumbo loans up to $2 million with just 5% down and no PMI.

So PMI requirements for jumbo loans vary more than on conventional mortgages. Shopping around with different lenders can help you find a jumbo loan with low or no PMI.

Alternatives To Jumbo Loan PMI

While PMI is common on jumbo loans with low down payments, you may have alternatives:

• Higher Interest Rates – Some lenders may offer jumbo loans with less than 20% down and no PMI, but charge a higher interest rate. Essentially you either pay more upfront with PMI or more over the loan term through a higher rate.

• Piggyback Loans – This involves combining a jumbo first mortgage covering 80% of the purchase price with a piggyback HELOC or second mortgage for the remaining down payment amount. Since the first mortgage is 80% LTV, PMI may not be required.

• Using Collateral – In some cases, borrowers may be able to use stocks, bonds, or savings to secure a jumbo loan and avoid PMI. Requirements vary by lender.

• Paying PMI Upfront – Certain lenders may allow borrowers to pay PMI for the entire loan term upfront at closing, rather than monthly. This can save money compared to monthly PMI.

• PMI Alternatives – Some lenders have private jumbo mortgage insurance alternatives to traditional PMI that may cost less. Ask your lender for options.

The availability of these PMI alternatives depends on the lender and loan program. Shopping around is key to finding the best fit.

Factors That Impact Jumbo Loan PMI Rates

On jumbo loans requiring PMI, several factors influence how much you’ll pay:

• Credit Score – Borrowers with higher credit scores generally get lower PMI rates. Those with scores below 700 can expect to pay more.

• Down Payment – The lower your down payment, the higher your PMI will be. A 10% down payment will have higher PMI than 15%.

• Loan Amount – PMI costs go up as the loan amount rises. So expect higher PMI on a $2 million loan versus $1 million.

• Loan Type – PMI may cost more on adjustable-rate jumbo loans versus fixed-rate. And investment property loans have higher PMI than primary residences.

• Occupancy Type – Owner-occupied jumbos usually have lower PMI rates than second homes or investment properties.

Shopping around helps find the best PMI rate for your situation. Comparing quotes from multiple lenders is key.

Tips For Getting A Jumbo Loan With Low Or No PMI

Here are a few tips for reducing or eliminating PMI on a jumbo mortgage:

• Make a down payment of at least 20% if possible. This exempts you from PMI requirements completely.

• Shop different lenders to find low or no PMI options. Online lenders and brokers often have more flexible programs than banks.

• Ask about alternatives like higher rates, upfront PMI payments, or piggyback loans. See what options each lender provides.

• Work to increase your credit score above 700, which can lower PMI rates significantly.

• Reduce other monthly debts to lower your DTI and improve chances of qualifying for low PMI programs.

• Consider using collateral if possible to secure the loan and avoid PMI.

Taking these steps can help you find and qualify for a jumbo loan with reduced or eliminated PMI. That can mean big savings over the loan term.

Frequently Asked Questions About Jumbo Loan PMI

Here are answers to some common questions about PMI on jumbo mortgages:

Can I cancel jumbo loan PMI at some point?

Yes, jumbo loan PMI can be cancelled once you reach 20% equity in the home. You’ll need to contact the lender to request cancellation.

Does jumbo loan PMI automatically terminate at some point?

No, PMI on jumbo loans does not automatically fall off when you reach 20% equity like it does on conventional loans. You must proactively request cancellation.

Can I get a no PMI jumbo loan with 10% down?

In some cases, yes. Certain lenders offer jumbo mortgage programs with no PMI and down payments as low as 10%. Shop around to find these options.

Is jumbo loan PMI tax deductible?

Unfortunately no, PMI on jumbo loans cannot be deducted on your taxes like interest and property taxes. PMI on conventional conforming loans is tax deductible.

Can I avoid jumbo loan PMI by paying discount points?

Yes, paying discount points to buy down your interest rate can sometimes help you qualify for lower or no PMI on a jumbo loan.

How much does PMI cost on a $1 million jumbo loan?

PMI costs vary widely based on factors like your credit score, down payment, and lender. But expect to pay between 0.5% – 1.5% of the loan amount annually. On a $1 million loan that equates to $5,000 – $15,000 per year.

The Bottom Line

The bottom line is jumbo loan PMI requirements are flexible. While traditionally PMI was mandatory for less than 20% down, today’s jumbo market includes options to reduce or eliminate PMI.

Comparing quotes from multiple lenders is key to getting favorable rates. And be sure to ask lenders what alternatives to PMI may be available. Taking these steps can help you get into your dream home while minimizing mortgage insurance costs.