Author: David Armenta
Date: 5-6-2023
A jumbo loan is a type of non-conforming conventional loan that exceeds the loan limits set by Fannie Mae and Freddie Mac. To qualify for a jumbo loan, a borrower typically needs to meet stricter requirements than for a conforming loan. Here's an example of a jumbo loan and how to qualify:
Let's say you're looking to purchase a home for $1.5 million, and you want to finance the purchase with a jumbo loan. Here are some common requirements to qualify:
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Credit score: Jumbo loan lenders typically require a minimum credit score of 700, although a higher credit score may be needed to qualify for a better interest rate. Your credit history, including payment history, outstanding debts, and credit utilization, will also be evaluated.
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Income: Because jumbo loans involve higher loan amounts, lenders usually require borrowers to demonstrate significant income and assets. You may need to provide tax returns, W-2s, bank statements, and other financial documentation to prove your income and assets. The debt-to-income ratio requirements for jumbo loans may also be stricter than for conforming loans, with some lenders requiring a maximum debt-to-income ratio of 40%.
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Down payment: Jumbo loans typically require a larger down payment than conforming loans, often 20% or more of the purchase price. However, some lenders may allow a lower down payment with the addition of private mortgage insurance (PMI).
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Property appraisal: As with any mortgage, the property being purchased must be appraised by a licensed appraiser to ensure that its value is sufficient to secure the loan.
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Other requirements: Jumbo loan lenders may have other requirements and guidelines, such as minimum reserves (i.e. cash reserves set aside after the loan closes), and may have different guidelines for different property types (e.g. primary residence vs investment property).
It's important to note that jumbo loans can have higher interest rates and fees than conforming loans, as they are considered higher risk. As with any mortgage, it's a good idea to shop around and compare offers from multiple lenders to find the best deal for your needs.
