If you’re in the market looking for a new home, you’re certainly not alone. The housing market has been quite busy over the past year and change, with many Americans taking the uncertainty of the pandemic to make the move to a new location.
If you’re looking into homes at the present, it’s important that you take the time to understand what a jumbo mortgage loan is. If you’re considering this kind of loan, it’s important to understand the benefits they provide and the potential complications you need to look out for.
What do you need to know about jumbo loans? Read on and we’ll walk you through all the details.
What Is a Jumbo Mortgage Loan?
If you’re not familiar with the concept of a jumbo mortgage loan, you better get straight on the basics first. A jumbo loan is essentially a loan that is used to finance a property that would otherwise be too expensive for a loan.
Conventional loans only cover so much (generally somewhere just under $700,000, depending on location, thanks to the FHFA). If the home you’re looking into is more expensive than that amount, then you’ll need a jumbo loan in order to make the home yours.
Jumbo loans are riskier for lenders given how much money they are putting on the line. These loans can’t be guaranteed by the federal government either, meaning the lenders will be less protected should something go wrong in the course of loan repayment.
Jumbo rates may come in a variety of forms, with different kinds of interest rates and terms attached.
Jumbo Loan Requirements
Due to the fact that these loans are riskier for lenders, most lenders will require more strict requirements for those looking to apply. Jumbo home loans will only be granted to a certain kind of borrower.
What kind of person do you need to be? Your FICO credit score will need to be quite high, perhaps as high as 720. If you have any issues with your credit, this loan might not be for you.
In addition, jumbo mortgage lenders will also take a close look at your debt to income ratio. Most lenders will have some sort of cap and will not work with someone whose ratio is too high.
If you have a high cash reserve in the bank, however, they might be more interested. Having ample cash in the bank can help feel the lender feel less at risk, though they also might ask for a jumbo loan down payment. One year of mortgage payments could be requested.
Acquiring a Jumbo Mortage Loan
If you’re looking to buy a fairly expensive house sometime in the future, a standard conforming loan is not going to do the trick for you. It will be important that you understand what a jumbo mortgage loan is and what you’ll need in order to apply for one. The above info can help.
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