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.
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.
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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