Jumbo Loans

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WHAT IS A JUMBO LOAN?

Homes with loans exceeding the loan limits set by government sponsored entities (GSEs) are financed through jumbo loans. This financing structure is both suitable and generally preferable for borrowers in the market of luxury homes or who are interested in refinancing a pre-existing large mortgage. Jumbo loans allow borrowers to enjoy larger loans at a lower rate. While traditional loans must conform to the requirements set by Fannie Mae and Freddie Mac, jumbo loans present another option that grants flexibility to prospective home buyers.  

When the amount you want to borrow for your property goes beyond the limits, a jumbo loan lender may require:

  • Stronger credit scores. 
  • More cash in the bank. 
  • Larger down payment.
  • An extra appraisal. 
  • Additional fees.

WHO QUALIFIES?

Qualifications for a jumbo loan are very similar to those used for a conforming loan with a few extra requirements and higher standards to minimize the risk for the lender responsible for the larger loan. Lenders will generally look into the borrower’s monthly income, monthly expenses, excess cash, and credit scores when deciding if the borrower will in fact meet the specified qualifies. If your credit score sits at 700 or higher and you have 6 to 12 months in reserve, you will likely fit the requirements to qualify for a jumbo loan. Higher credit scores with a history of stable income will bode well in the borrower’s favor here.

Again, lenders are looking to reduce their risk and ensure that they are investing in people who are likely to be able to pay off their loan in a timely manner. With this in mind, individuals looking to take out a jumbo loan will be asked to provide proof of a substantial and stable income. If you’re scores are on the fence or less than perfect, there’s no need to give up! Contact our team to learn about improving your qualifications or to learn about other programs that may better fit your circumstances.

BENEFITS/TIPS

Jumbo Loans are useful when considering not only luxury properties, but higher priced markets as well. Homes in New York and San Francisco are highly desirable and generally pricey when thinking about the amount of home you will be able to purchase relative to the property price. Jumbo Loans offer additional flexibility to qualified buyers. With a jumbo loan, borrowers can adjust the amount of time on the fixed-rate loan, change the mortgage to be the adjustable rate, and even borrow the full amount of money from one loan rather than of having to break it up into many different smaller loans. 

While all of this may seem great so far, it is important not to forget that a jumbo loan will likely be accompanied by a higher interest rate. 

Being approved for a jumbo loan can be difficult. You’ll have to prove that your income is high enough to be able to manage the monthly payments. Lenders want to be confident that you will be able to repay your loan so during this time, it is best practice to avoid excessive debt or large expenses. 

If you have additional queries regarding jumbo loans, please do not hesitate to contact Lending Corner today!

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Answers to Your Questions

There are a lot of factors to consider when determining how much you can afford, but a good rule of thumb is to not let your monthly mortgage exceed 25% of your monthly take-home pay. Following this guideline will help you manage additional homeownership costs such as maintenance and repairs, while still keeping room for other financial goals like retirement and savings. There are also tons of affordability calculators you can find online, like this one!

Pre-Qualification and Pre-Approval both estimate the loan amount that you are likely to qualify for. This is an important first step in the home buying process to ensure you are looking at the right homes that fit your budget.

Pre-Qualification and Pre-Approval are often used interchangeably and can both help you stand out amongst the homebuyer competition. Both require you to supply an overview of your financial history such as your income, assets, debts, and credit score. However, most people look at pre-qualification as step one and pre-approval as step two because pre-approval requires formal documentation and verification.

The amount of time it takes to close a loan will differ from lender to lender, but a top mortgage lender should be able to close your loan within 30-45 days from application. Not having the proper documentation or having errors in your documentation may result in delays so it’s important to make sure you have all of your materials properly prepared.

Mortgage lenders will require you to provide certain documents in order to assess your ability to repay your loan. The Great Recession was due in part to borrowers not being adequately vetted for their ability to repay their loans. For this reason, the pre-approval process now requires significantly more paperwork. You will be asked to provide documentation regarding your employment and income, savings and assets, and outstanding debt.

Some of these documents include:

  • Tax returns
  • Pay stubs/W-2s
  • Bank statements
  • Credit history
  • Gift letters
  • Renting history
  • Work history

Most conventional loans require at least 5% down, but 20% is typically recommended. Mortgage companies often require borrowers to pay private mortgage insurance until they have 20% equity in the home. This additional fee is put in place to protect mortgage companies against borrowers who stop making payments on time.

Although this is standard, there are also many different loan programs that can help you purchase a home with less than 5% down. For example, some Veterans can qualify for VA loans that allow them to purchase a home with 0% down and no PMI. FHA loans can also allow first time homebuyers to purchase a home with as little as 3.5% down.

Your lender will be able to assess your financial situation and determine which programs you qualify for and which ones are best for your financial goals.

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