December 4, 2019
When it comes to taking out loans, you may not be aware that there is more than one option available to you. This is especially true if you are in the process of searching for your dream home and know that it is going to cost more than what you can get with a conventional loan.
If you are currently having that issue, or think you will in the future, then you must learn everything that you can about jumbo loans.
Jumbo loans are a type of mortgage that many people need when they are looking to finance homes that are more expensive than what is usually covered in a conventional loan. According to the Federal Housing Finance Agency, the most you can get with a conventional loan is $484,350. Therefore, if you are currently looking at homes, or will be looking at homes, that are more than that, you will need to apply for a jumbo loan.
What You Need to Qualify for a Jumbo Loan
A High Credit Score
When you apply for a jumbo loan, your lender may require you to have a FICO score that is higher than 700.
Cash Reserves in Place
If you have quite a bit of money in the bank, you will have a much better chance of being approved for a jumbo loan. In fact, some lenders may require you to have enough cash to cover one year’s worth of mortgage payments.
A Low Debt-to-Income Ratio
The lower your debt-to-income ratio is, the better chance you have of getting your jumbo loan approved. If you have a lot of cash set aside, this may not be a problem, but most lenders prefer to see this ratio below forty-five percent.
Plenty of Documentation
Jumbo loans require a lot more paperwork, and documentation, than conventional loans. In addition to W-2’s, 1099s, and tax returns, you will need to include bank statements, investment accounts, and much more.
Multiple Appraisals
A few lenders may want multiple appraisals on the home you are planning to purchase to make sure that it is truly worth what you want to pay.
Jumbo Loan Differences
Larger Down Payments
When you have a jumbo loan, you must be prepared to make a larger down payment. This down payment is normally twenty percent, but you may be able to negotiate down a little.
Higher Interest Rates are Possible
There is a chance that your jumbo loan can have higher interest rates, but it all depends on which lender you are using.
Closing Costs and Fee May Be Higher
Jumbo loans are for a lot of money, so you must be prepared to see the closing costs and fees be higher when you sign the papers.
It is important to note that some areas of the country are increasing the limits for their conventional loans, so make sure you talk to your lender to see which option is best for you. You may have the option to do either a conventional or jumbo loan for your new home.