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.
Qualifying for a jumbo loan is similar to qualifying for a conforming loan. Lenders take monthly income, monthly expenses, excess cash, and credit scores into account when deciding if a borrower qualifies.
Generally if your credit score sits at 700 or higher and you have 6 to 12 months in reserve, you will fit the requirements to qualify for a jumbo loan. For individuals looking to take out a jumbo loan, proof of a substantial income will also be necessary.
For real estate in more expensive markets, like those of New York City and San Francisco, taking out a jumbo loan will assist in paying for pricier properties. These loans also allow for more flexible loan terms, allowing the borrower to adjust the amount of time on the fixed-rate loan or change the mortgage to be the adjustable rate. It also helps you to borrow the full amount of money from one loan instead of having to break it up into two different loans for buying a higher-priced home.
One thing to keep in mind: these loans will naturally come with higher interest rates. To qualify, a good credit history is essential, so double check all credit reports for any potential inaccuracies. In general, being accepted for a jumbo loan is difficult, so you must also be able to prove that your income is high enough to be able to afford monthly mortgage payments.
It is also recommended to avoid investing in any other properties if you have any lingering debt — be it from remaining college loans or medical bills — or you can anticipate a large expense coming quickly. Lenders want to know that you have the funds to pay off the loan, and that you will continue to do so for the years on the loan.
Feel free to contact Lending Corner today for any inquiries about Jumbo Loans!
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