How Can Jumbo Loan Help You When Buying A High Priced House?
So, you have found the luxury house that fits your vision of a dream house, but you need more money to buy it than what you have saved already. You may opt for the loan, but the loan that you need to buy that dream house is bigger than the standard conforming limit of the loan. Do you have any other option?
Yes! Jumbo loan is your option. It is an excellent option for the home buyers who have good financial standing and can afford to take a larger loan. Now you must be wondering, what is a Jumbo loan?
What Is A Jumbo Loan?
A jumbo loan also called ‘non-conforming mortgage’ is a kind of loan that is much bigger in amount than the standard conforming home mortgage limits. It exceeds the limits of loans that have been set Fannie Mae; the Federal National Mortgage Association, and Freddie Mac; the Federal Home Loan Mortgage Corporation, regulate. These are the government-supported enterprises, which purchase mortgages from the lenders.
Jumbo loans are usually used for buying high-priced houses. Potential real estate buyers for larger homes should have a strong and stable financial condition to secure large mortgage loans. They are required to have a high credit score with a low ratio of debt-to-income along with sufficient cash reserves to support their mortgage.
The home loan rates limit on the conforming loans in most states is $484,350, but it can exceed up to $726,525 in areas where real-estate costs are higher. If you are seeking a mortgage loan that is higher than the prescribed limit in your region, then you can opt for a jumbo loan.
But before you go for a jumbo loan, remember that you should be capable of bearing a more significant financial burden. Fannie Mae or Freddie Mac, the chartered lenders of government for home loans, do not handle jumbo mortgages. This means that the jumbo loan is kept on the book of the lenders who have their requirements of underwriting. Due to this, the jumbo loan eligibility requirements can vary from lender to lender.
How Large Home Mortgage Works?
If you want to buy a house that costs about a half a million dollars or above, and you don’t have enough money to support your purchase, then a jumbo mortgage can help. The credit requirements for a jumbo loan are much stricter and rigorous than the conventional home mortgage requirements. This is because there is a higher credit risk for the lender involved because FNMA and FHLMC do not guarantee loans. The risk is also higher because a large sum of money is involved.
Since 2008, the minimum jumbo loan requirements have become much more stringent. There are specific jumbo loan requirements which you need to fulfill to apply for the loan.
- You should have a credit score of 700 or more
- Your ratio of income-to-debt should be very low (under 43%)
- The jumbo loan must follow the Consumer Financial Protection Bureau Guidelines
- You are required to give a proof of your accessible cash in hand which is needed to cover payments. It is probably quite high if you choose a standard 30 years plan for a fixed mortgage.
- All borrowers require submitting 30 days payslips with W2 taxation forms that stretch to the past two years.
- In the case of self-employment, the requirements of income are even higher. You need to show tax returns of the past two years with a minimum 60 days of your present bank statement.
- To qualify, you also need to show and prove your liquid assets along with cash reserves that should be equal to the mortgage payments for at least six months.
Moreover, the applicant needs to show the proof of liquid assets ownership and appropriate documentation for all other held loans.
Jumbo Loan Down Payment Requirements
The requirements for the down payment of Jumbo loans have become quite flexible and low over time. It has fallen from 30% to nearly 10% -15%.
Is It Right For You To Take Jumbo Loan?
A jumbo loan is right for you if you have:
- High- income
- Good credit score
- Plenty of assets
- Strong financial backing
If you are ready to take the burden of financial commitment for long-term, then you can apply for a jumbo loan.
Have questions or need more info? Contact us today! We’d love to sit down for a few minutes for a free consultation on which type of mortgage we recommend.