All About Jumbo Loans, Benefits, and Three Things to Consider Before You Get One!
If you’re toying with the idea of buying a home, getting a loan might be the first thing on your mind. And if you are planning to buy it with the help of a jumbo loan for a single-family residence, it is important to know more about it. Not all Jumbo loans are the same, so it is best to know about the one which suits you best. As this plus-size home loan, a jumbo loan or non-conforming mortgage does not cater to the guidelines set by Fannie Mae and Freddie Mac. It means that the lender can’t sell off the mortgage to either agency and therefore needs to keep it inside the portfolio.
Jumbo loan borrowers typically need to fulfill more financial needs to qualify for the loan easily. The conforming loan size limit for a family residence in 2017 was $424,100 nationwide. But the price may rise, particularly in high-priced markets, namely in San Francisco or Los Angeles. So, if the loan amounts to $424,100, it will be tagged as a jumbo loan. Many potential homebuyers may consider a jumbo loan with the spike in home prices and interest rates. Before you consider a jumbo loan, here is what you need to know about Jumbo Loans.
What Is a Jumbo Loan?
A Jumbo Loan is a type of mortgage that helps finance a very expensive home, and a traditional conforming loan won’t suffice. In most cases, the maximum amount that you can get a traditional mortgage loan is $510,400, as set by Federal Housing Finance Agency (FHFA). Houses that are over this amount will need a jumbo loan.
The non-conforming conventional mortgages are a riskier investment proposition for lenders. That is because Fannie Mae and Freddie Mac don’t condone these types of loans. In other words, it is also a mortgage loan, without the protection built-in for your lender. Most jumbo loans come with a fixed rate at an adjustable rate, and different loans come with various terms and conditions.
The Benefits of a Jumbo Loan
The biggest advantage of a jumbo loan is that, it can go beyond the limitations set by Fannie and Freddie. So, you can get a competitive interest rate to finance your dream home without the boundaries imposed in cases of traditional conforming mortgages.
How to Get a Jumbo Loan?
These loans may be a risky option for lenders. And when loans are larger, the criteria for getting a jumbo loan is far more strict. One must consider the three things before you get to know, whether you qualify for the loan or not.
A strong credit score will help you get a jumbo loan. However, the credit score must be as high as 700 or, in some cases, even higher, say above 720.
Debt to Income Ratio
Apart from an impressive credit score, lenders will also look at the debt to income ratio or your DTI. Lenders want to check whether you have over-leveraged in your finances as you may end up getting a default in your loan. Some lenders are a little more flexible than others. Some lenders are willing to be more flexible if you can display enough cash reserves. Most lenders will have a cap for the DTI that they will accept.
You need to have a substantial amount of cash in the bank if you need a jumbo loan. You may also need to be aware that your lender may ask you to prove that you the same amount of cash on you to cover one year of your mortgage payments before greenlighting the jumbo loan.
Getting the Appraisals
When you plan to make such a big purchase, some lenders may need more than one appraisal of the property. The loan amounts are considerably higher, so lenders are, in most cases, more selective given the huge risk involved in issuing jumbos.
Jumbo loans are a convenient option for financing a property. Rather than opting for two conforming loans to buy a property, you can settle for one jumbo loan. Jumbo loans can eventually help you get that high-priced house that you have been pining after. If you have the funds available, this can be a great option for you to own your dream home!
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