Jumbo Home Loan

Jumbo Home Loan 101: Features and Requirements

Want to buy an expensive property and cannot find a loan to finance it? You might want to look into Jumbo Home Loans which is especially meant for properties that exceed the conforming loan limit. The conforming loan limit is set by the Federal Housing Finance Agency and differs from area to area. 

Last year, the Federal Housing Finance Authority set a limit of $484,350 for majority of the country which was an increase from $453,100 limit the previous year. The rate offered with a Jumbo Home Loan can be either fixed or adjustable. In a Jumbo Home Loan arrangement, the lender is more at risk than the borrower which is why the criteria for qualifying for this loan is also stringent. 

Who can Qualify for a Jumbo Home Loan?

Credit score is an important criterion to factor in your ability to pay. If the credit score of the borrower is more than 700, they may be eligible for a Jumbo Loan. Of course, the threshold varies and in some cases, the borrower will have to have a credit score of 720 to qualify depending on the loan and the lender. 

Another criterion that becomes a deciding factor by the lender is the debt-to-income (DTI) ratio of the borrower. The DTI is taken into consideration so that the borrower does not become over-leveraged. This condition can be overlooked if the borrower has enough cash reserves. 

Since Jumbo Home Loans are huge and are often used to finance super expensive properties, the lenders will carefully look at your documentation. As a borrower, you should have all the relevant documents in place such as your tax returns, bank statements, investment account information, W-2s and 1099s. There may be additional requirements as well given the nature of the risk involved for the lender and how big the loan happens to be.

Lenders also require appraisals of the property you want to purchase. An appraisal is a way to get an unbiased estimate of the property and is based on the current market value. Sometimes lenders require two appraisals before they can process the loan for you. 

Who is the Perfect Borrower for a Jumbo Home Loan?

The down payment of Jumbo Loans is not the same as conforming ones. The interest rates also tend to be high and depend on your financial situation and the lender you decide to deal with. Not only that, but the closing costs and dues are also hefty, therefore it is important that the borrower is in a good financial position and has the cash flow to take on a loan like this. 

These mortgage loans make perfect sense for people who earn $250,000 to $500,000 a year. Of course, the lender will consider how likely you are to default and other factors before agreeing to the arrangement. There are a lot of people who earn well but may not have accumulated wealth to fall back on, however, if they have the right credit history they may be eligible for the loan. 

Before opting for a Jumbo Home Loan for purchasing a luxury residence, keep in mind that such properties are more vulnerable to market fluctuation. Since the down payment is considerable and the rules are strict, do research loan options and rates to figure out which Jumbo Home Loan fits your need.