Jumbo
When you purchase a new home, there are typically limits on the amount of money you can borrow. These limits are set by the Federal Finance Housing Association and are adjusted on as the real estate market changes. The current limit is $417,000 for a single-family home in most areas of the country but can extend to $625,000 in more expensive real estate markets.
A Jumbo loan, or a non-conforming loan, allows a homebuyer to borrow more money than a conventional loan in order to purchase a more expensive property. Since a homebuyer is borrowing a larger amount of money with a Jumbo loan, the qualifications are a bit stricter than with a conventional loan.
If you are planning to purchase a home that is more than $417,000 a Jumbo loan might be the right option.
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How do you Qualify for a Jumbo Loan?
The terms of eligibility are a bit stricter than with a conventional loan. The bank wants to reduce risk and to be confident the loan will not go into default before lending a large amount of money to the homebuyer.
Homebuyers must prove excellent credit, typically, a score over 720.
The homebuyer must provide documentation that they have a steady source of income, and six to 12 months of reserves available to pay for the mortgage. Half of these reserves can be in a retirement account; the other half must be cash or liquid assets.
Some lenders will allow a 20% down payment, while other lenders will require a 30% down payment.
The homebuyer’s debt to income ratio should not exceed 38% (versus a conventional loan, where the debt to income ratio is 43%).
A Work Around for the Jumbo Loan
Most Jumbo loans have adjustable rate mortgages (ARMs). This means that the interest rate on the loan is not fixed, it can increase. For this reason, one option to consider instead of a Jumbo loan is first mortgage and a second mortgage. Some homebuyers find that two mortgages make more sense financially. When comparing a Jumbo loan to a second mortgage, you will want to make sure that the combined interest rate on two mortgages is lower than the interest rate on the Jumbo loan.
Another option to consider is the FHA Jumbo loan. These loans typically have a smaller down payment required, but still allow the homebuyer to borrow more than a conventional loan. If you are considering purchasing a home that exceeds $417,000 it’s important to understand all your financing options. Call Signature Lending Services at 877-948-2562 so we can advise you on the best course to achieve the financing you need.
