We know that owning the luxury home of your dreams begins with securing the right type of jumbo loan loan. In today’s market, this type of loan is becoming more sought out than conforming loans. When it comes to this loan type you need to know what the lenders guidelines are for approval based on your specific needs. All lender will vary there are some specific requirements that most lenders will be looking for. When you are ready to take that step, be sure talk to your lender to understand the loan limits for your area.
Jumbo mortgages provide loan amounts that are much higher than the limits typically given the traditional conforming loan. These limits exceed the standard limits set by Fannie Mae and Freddie Mac guidelines. Any loan that exceeds the amounts set by Fannie Mae and Freddie Mac fall under the umbrella of jumbo mortgages.
Any loan amount under $417,000 for all states, except Hawaii and Alaska where it is $625K, would be classified as a conforming loan limit. Mortgage loan amounts that are larger than $417,000 are factored into the Jumbo loan category. Jumbo mortgages will have higher interest rates to offset the costs that are incurred by setting the higher loan limits. These rates and cost will vary between lenders, so do your due diligence and shop around.
Unlike Jumbo loan limits, the super jumbo mortgage category is not specially defined. Instead mortgage lenders independently define their own parameters a Super Jumbo mortgage. The minimum loan amount for some ranges from $500,000 (with the exception of Alaska, Hawaii, Guam, and the US Virgin Islands where jumbo loan limits on single family residences are $625,000, or 50% higher) to $1,500,000, with maximum super jumbo loan amounts in the range of $10,000,000 or more.
Jumbo Loan for First Time Buyers
Qualifying for a Jumbo Loan as a First Time Home Buyer
At first, jumbo loans were typically used by current homeowners that were upgrading to a to a larger, more expensive home. Lately, however, more and more jumbo loans are being sought by first-time home buyers. But these days more and more jumbo loan applicants are first-time homebuyers. Of course, if you are a first time home and you live in expensive housing markets you will be hard-pressed to find a home for sale at a price below the jumbo threshold.
Qualifying for a jumbo loan can be harder for first time buyers, but not impossible. Lenders are typically looking for a 700 credit score with a down payment of at least 20% and assets for reserves sufficient enough to cover up to 18 months of mortgage payments. Buyers will also need to carry a debt-to-income ratio of no more than 42 percent and maybe lower. If you are a first time buyer, lenders will most likely ask you to meet tighter qualifications. Some lenders will even put restrictions on the loan amount, for example, setting a max loan cap of $1 million. Lenders want to see that the borrower will be able to handle the hefty payments, particularly if he or she was previously renting for a much lower monthly amount. Transitioning to a high-income lifestyle can be challenging, and not everyone manages well.
Jumbo Loan Requirements
Jumbo loan requirements are stricter than the traditional confirming loans. The larger the jumbo loan, the harder it can be to qualify. A credit score of at least 720 is required for loans up to $1.5 million, with a 20 percent down payment and cash reserves sufficient enough to cover up to 12 months of PITI (Principal, Interest, Taxes and Insurance). For loans greater than $1.5 million, the lender may require at least 30 percent down and 18 months of cash reserves. Loans above $2.5 million could require even more cash up front of possibly 45 percent and 36 months of reserves.
Low Down Payment Jumbo Loans
There will be buyers that will locate jumbo loan lenders that will allow less than 20 percent down on their purchase. These borrowers must qualify with a credit score of 720 or higher, significant assets (1 Million or more), and a debt-to-income ratio of no more than 38 percent. Keep in mind, when putting less than 20% down, the lender will require private mortgage insurance, and will charge a higher interest rate. FHA also guarantees jumbo loans of up to $729,750 in some areas and borrowers only pay 3.5 percent down, but again the fees and interest rates will be higher.
The difference between the average rates for jumbo loans and conforming loans are the narrowest that they have been in five years; this still applies, even with the recent rise in interest rates. In fact, some lenders are offering jumbo rates that are lower than conforming loans. This is great news for buyers getting into jumbo loans.
Advantages of Jumbo Mortgages
Jumbo mortgages have a relatively negative reputation in the United States. However, despite general impressions of Americans, there are several distinct advantages to obtaining a jumbo mortgage. The most obvious advantage is that the loan limit is set much higher than the limits of more traditional mortgages. This allows borrowers to mortgage more expensive houses that might not be affordable under a lower loan limit. As a result, jumbo mortgages substantially increase the number of options a potential homeowner can choose from.
Another advantage of jumbo loans has to only deal with one lending institution. In a misguided effort at avoiding jumbo mortgages, many homeowners take out multiple mortgages from separate lending institutions. This makes refinancing difficult, and often renders it impossible. Working with a single lending institution allows for easy modifying of loans.
- Plan ahead. First-timers,especially, should check their credit reports and make any necessary corrections. Again, a great credit score is critical. The better your credit, the more lenders will be willing to work with you
- Calculate all costs. Lenders are going to review your DTI (debt-to-income) ratio. Add up all your recurring minimum monthly charges and be ready to prove income in order to show that this mortgage will be affordable for your household.
- Shop around. All lenders have different lending guidelines with Jumbo loan types. Shop around to find the lender that fits best with your needs and is most affordable.
- Factor in all costs. Keep in mind to calculate any HOA fees and other monthly expenses, like landscaping services or a bigger utility bill and set aside a sensible reserve for this regular maintenance.
- Build up your cash reserve. The best jumbo loans are for 65 percent of a home’s value (compared with 80 percent for a traditional loan). That means you’ll need to make a down payment of at least 35 percent, or you may need to seek out a second loan to bring down the loan-to-value ratio on the primary mortgage.