A jumbo mortgage is a home loan with an amount that exceeds conforming loan limits imposed by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy mortgages from lenders. The limit is $453,100 in most parts of the United States, but is $625,500 in the highest-cost areas and in-between in others. The cost of a jumbo loan is higher than a standard loan, so expect a higher interest rate for a jumbo loan.
What Do You Need To Qualify For Jumbo Loans?
If you are considering purchasing a home, you will need to know what is required to be eligible for jumbo loans. If the price of the home exceeds the conforming limit of $453,100 which is set by Fannie Mae or Freddie Mac, then a jumbo loan is needed. Once you have reviewed the requirements, you can begin getting everything together.
To qualify for a jumbo loan, you will need to meet the following criteria:
- Minimum credit score of 680. A lower credit score may be accepted if a larger down payment is put down.
- Minimum down payment of 20% (sometimes can be lower)
- Debt to income ratio cannot exceed 43%. (Some lenders will deviate from this percentage.)
- Applicant must have all paperwork including:
- Proof of income
- Proof of liquid assets
- Paperwork on any other loan
- Evidence of non-liquid assets
If you meet these requirements, then you need to choose a lender. They will tell you if there are any additional requirements. Our lenders at NHL will help you from the beginning until the end. We will stick by your side and answer any questions that you may have.
Is it Difficult to Qualify for Jumbo Home Loans?
Over the years, it has become more difficult to qualify for jumbo home loans. Prior to 2007/2008, it was easy to qualify for a jumbo loan. This was due to lenders finding creative ways to extend financing. Then during the economic turn down, they were left with several foreclosed properties.
To avoid this, they put strict guidelines in place to qualify for jumbo loans. First, the applicant needs to have a credit score of 680 or higher. They also need to have a 20% down payment. The monthly payment cannot exceed 43% of pretax income. The applicant will also need to have all required paperwork in order. The documentation required varies by the lender but should provide proof of any claim. Some of the most common forms of documentation include the following:
- Proof of income
- Proof all liquid assets
- Proof of other non-liquid assets
- Documentation on any other loans
If the borrower does not meet any of these areas, they will need to check to see if there are any exceptions. If the lender does not agree to the exceptions, then the borrower will need to look elsewhere for a house. While looking, they need to ensure it does not exceed the conforming limit.
Secure the Best Jumbo Mortgage Loan
If you meet the requirements to qualify for jumbo mortgage loans, you can do these things to secure the best rates. The first thing lenders look at would be the applicant’s credit score. If the score is low, it shows the potential borrower has had problems paying their bills on time. This is a red flag to them as they want their money always paid on time. The higher the score, the more attractive you are to a lender.
Next lenders look at the amount of the down payment. The larger the down payment, the less you will need to finance, and it reduces the risk to the lender. So, the more you put down, the more attractive you are.
Finally, lenders look at debt to income ratio to ensure the applicant can afford to make the payments. If the debt to income ratio exceeds 43%, the borrower will be almost maxed out each month. In this instance, if something goes array, they may not be able to make their monthly payment.
Conventional Loans or Jumbo Loans: Which is better?
Both conventional loans and jumbo loans can help their borrower purchase a home. So the question should not be, which one is better, but which one is better suited for the home being purchased.
Jumbo loans are meant for those homes which exceed the conforming limit set by Fannie Mae and Freddie Mac which is $453,100. Over the years it has become harder to qualify for this type of loan as the lender wants to ensure the applicant can afford the loan. During the 2007/2008 economic turmoil, several homeowners were forced to foreclose on their homes because they just could not afford the payments and the lenders were left with a plethora of foreclosed properties. The best way to protect themselves and avoid this would be to put strict criteria in place. To qualify for a jumbo loan, the applicant must have a minimum credit score of 580, minimum down payment of 10 to 20% and a debt to income ratio of 43% of pretax income.
Get the Lowest Jumbo Mortgage Rates Possible
If you are in the process of purchasing a home and you are interested in getting the lowest possible jumbo loan rates, you should pay careful attention to your credit as well as have a sizable down payment.
When it comes to your credit, the higher it is, the better the interest rate you will receive. The reason being, when you have good credit, it shows that you pay your bills on time and have low balances on your credit cards so you will most likely be able always to pay your mortgage payment on time. Because of this, some lenders will offer lower interest rates. If you can make a down payment that exceeds the minimum of 10 to 20%, the lender will most likely extend lower interest rates.