Financing Your Home: Jumbo Loan
In previous blog posts, we addressed the details of a variety of financing options for purchasing a home including, a reverse mortgage, a veteran affairs loan, a conventional loan, and a federal housing loan. If you still haven’t found a financial option for you, a jumbo loan could be right for you.
A jumbo loan or jumbo mortgage is a type of home financing that exceeds conforming loan limits created by the Federal Housing Finance Agency. Unlike conventional mortgages, a jumbo loan is not able to purchases, securities or guaranteed under Fannie Mae or Freddie Mac. Jumbo loans are primarily used to finance luxury real estate or in competitive real estate markets.
How to Qualify
Since Jumbo loans are not backed by Fannie or Freddie, they are riskier loans. Because of this, jumbo lenders typically have stricter underwriting guidelines. Even though lenders may have more to lose, they also have more to gain since the dollar value is higher. To be qualified for a jumbo-loan, borrowers need to have a higher credit score, a larger income, and substantial reserves.
Typically those who are approved have a credit score of 700 and above. Along with a high credit score, it is better to have a low debt-to-income (DTI) ratio, under 43%. To cover your jumbo loan, you need to have accessible cash. Your income levels and reserves will determine the overall size of the loan. Often lenders will have to provide pay stubs from the previous 30 days and W2 tax forms from the past two years.
As a borrower you also need to be prepared to show that you have enough reserves or assets to cover at least six months of mortgage payments. On average, down payments for jumbo loans are at between 10 to 20 percent.
Benefits of a Jumbo Loan
One of the main benefits of a jumbo mortgage, is that you are allowed to exceed the limits set by Frannie and Freddie. With jumbo loan, you can still receive a competitive interest rate without being restricted by the dollar limit that is set by conforming mortgages.
Jumbos loans are more convenient to deal with when compared to conforming loans. Getting one jumbo loan eliminates the hassle of getting two conforming loans.
If you find yourself in need of loan greater than dollar limit set by a conforming loan a jumbo loan may be the best home financing option for you.