A jumbo loan or mortgage is a loan that's bigger than "conforming" loans that lenders sell to Freddie Mac and Fannie Mae. With this type, the amount typically surpasses the limits set by the FHFA for conforming loans.
Jumbo loans seek to fund luxury homes and properties in very competitive real estate markets and they come with distinct tax implications and underwriting requirements. If you're thinking about taking this loan, one of our experts from Wilton Manor Jumbo Loans will advise you accordingly. Here's what you need to know about these kinds of loans.
Eligibility Requirements for Jumbo Loans
If you're thinking of purchasing an expensive property, a jumbo loan is an ideal solution. However, meeting eligibility is harder than it is for a conventional mortgage. Here are the major factors that determine eligibility.
It's important to note that jumbo loans usually attract more scrutiny compared to traditional loans. To qualify for this loan, you'll have to prove that you have the liquid reserves and income to cover the payments.
Conventional borrowers will require current pay stubs dating back a month and W2 tax forms dating back two years to demonstrate income. However, self-employed borrowers will experience more challenges than salary borrowers will.
If you're self-employed, be prepared to provide two years of tax returns and at least 60 days of bank statements. Moreover, you'll require liquid assets to meet eligibility. Be ready with 6 months of reserves for the mortgage payments.
Numerous jumbo mortgages are qualified loans, a system created by the Consumer Financial Protection Bureau to regulate mortgage terms. If you apply for such a mortgage, your debt-to-income ratio can't surpass 43%.
In the event that your debts push you beyond the limit, it's still possible to apply for a non-qualified mortgage. However, the lender will have to verify your ability to repay the loan comfortably.
Qualified loan rules have raised the need to provide documentation. While borrowers might have secured approval for a jumbo mortgage with restricted paperwork in the past, this isn't the case nowadays. When you apply for Wilton Home Loans, you'll have to provide the following documentation to support any claim. They include:
- Income proof from every source
- Evidence of liquid assets
- Documentation of other loans you're holding
- Ownership proof of non-liquid assets
- Credit Scores
These loans have a higher dollar value. Therefore, they demand higher credit score prerequisites. You'll require at least a credit score of 680 to qualify for most jumbo mortgages. Nevertheless, different lenders set their requirements and some might need a higher score for approval.
Depending on your circumstance, the lender might wish to examine mortgage statements or rental records from the previous years to validate your capacity to make payments and manage your finances.
While the application might be tougher, jumbo mortgage borrowers can look forward to lower down payments. Previously, you would need 20%-30% down payment for this loan. These days you require 10% with good credit.
However, bear in mind that a smaller down payment upfront could affect your loan terms. Ensure you read the loan documentation carefully.
Jumbo loans attract limitations that are more stringent when it comes to property eligibility than conforming loans. Some lenders will offer jumbo loans for a primary residence while others will allow them for second homes.
Some lenders won't write this loan for a foreclosed home or a short sale, and some have specific prerequisites for houses versus condominiums. When it comes to eligibility, contact your lender for comprehensive information before applying.
Benefits of Jumbo Mortgages
Access to considerable funds
A major advantage of this loan is that you can access a considerable amount of money that surpasses a conforming loan's limits. This implies that you can buy a highly valued or luxury property easily.
With a jumbo loan, you don't need to take out more loans. You simply need to manage the one loan.
Different program rates
You can select from an adjustable or fixed rate, giving you the flexibility to structure the loan in a manner that suits you.
Financial institutions and other private investors issue these loans. These lenders don't intend to sell the mortgages to GSEs, so they can establish their own criteria for approval. Each lender has unique concerns and goals, so every loan program differs.
That implies that it's necessary to shop among different lenders because approval criteria and pricing can differ widely. It's important you locate a lender that suits your economic situation and the property you are purchasing.
If you intend to purchase a high-priced property and don't make a considerable down payment, a jumbo mortgage might be your best option. Nevertheless, it's important you familiarize yourself with the eligibility requirements before making a decision.