Jumbo loans are homeownership loans that are not traditional. In its non-traditional nature, a Jumbo loan pushes past the loan ceiling set by the Federal government on home loans, which can be issued to borrowers. So, if you are scouring through properties on the market, and the price is way off the loan mark for a standard home loan, a Jumbo loan is a way to go.
The FHFA, Federal Housing Finance Agency, has $510,400 set as the maximum loan amount on standard home loans, so where do you turn to if the house you have eyes on is worth $750,000? A Jumbo loan.
Is your Form W-2 and your Form 1099 up to date?
Your W-2 and 1099 forms have to be up to date, including your tax returns too.
How does your statement of finance look?
If it looks good and shows you can finance a jumbo loan, then you are clear on this.
What is your FICO score?
700 and above (roughly 720 on a higher scale) is recommended and best preferred as your Credit Score rating. Your FICO score needs to be high here to determine if you are credit-worthy or otherwise.
What is your Debt-to-Income ratio?
If it is less than 50% on a debt-to-income (DTI) ratio and sits on the 45%-47% range, you are good to go on this criterion.
How deep is your cash reserve?
The deeper, the better; one year financial coverage on your mortgage is usually the minimum. Depth really matters here because for a home loan where the loan financing company is not shielded from losses if the borrower refuses/fails to pay back, the amount of money you have in the bank has to do some talking.
There are two types of jumbo loans and we will have a look at them.
A jumbo loan is different in many aspects to the standard home loans regulated by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association under the aegis of the Federal government; these two bodies which regulate standard home loans are respectively known as Freddie and Fannie. Other differences are the higher interest rates charged on jumbo loans and subsequent higher closing costs as well as an expected increase in a down payment required on jumbo loans versus standard home loans.
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Qualification Requirements for Jumbo Loans:
We know that jumbo loans always blow the loan limit for conforming loans, so we need to know exactly how they differ from conforming loans. These differences between jumbo loans and conforming loans are highlighted in the following ways:
Closing Costs and Fees
For jumbo loans, the fees and costs at closing require some extra steps for the qualification because the amount of the loan is bigger. Whereas conforming loans are easier and more affordable at closing.
Jumbo loans sit atop conforming loans whose limit is pegged at $510,400 most counties and $765,600 for more expensive counties. For jumbo loans, the amount is more open-ended in nature.
Typically, conforming loans have lower interest rates but because of the higher amount of money and the greater risks involved with jumbo loans, the interest rates charged on jumbo loans are higher. Fortunately, if you look around long enough and compare different interest rates offered by lenders, you could possibly get interest rates at par with the interest rates on conforming loans.
Down payments are affordable on conforming loans. You have different options to choose from with respect to the initial payment (down payment), starting from a meager percentage of 3% of the value of the assessed sale price of the home. With jumbo loans, it is 10% of the value of the sale price of the home is the minimum you can get and that is if you are fortunate to get that, the down payment rate is usually set at 20%.