Jumbo mortgages are a type of mortgage that can be used to finance properties worth more than the maximum loan limits set by Fannie Mae and Freddie Mac. These loans are backed by investors, and may be sold onto other financial institutions on the secondary market.
Jumbo mortgages carry a slightly higher risk, so lenders may charge an interest rate slightly higher than conventional mortgages. Nonetheless, these loans can be great options for high-income borrowers with excellent credit scores, manageable monthly debt obligations and large cash reserves.
Qualifications for Jumbo Mortgages
The eligibility requirements for a jumbo mortgage differ between lenders, but generally speaking you’ll need at least 720 credit score, substantial income and enough money in reserve to cover your down payment and closing costs. Furthermore, your debt-to-income ratio (DTI) must be low – calculated by dividing all monthly payments on outstanding debts by gross monthly income).
Down Payment Requirements for Jumbo Mortgages
Most jumbo mortgages require a down payment of 20 percent; however, many jumbo lenders offer loans with lower down payments. The amount needed will depend on the size and location of the property as well as the lender’s loan-to-value guidelines.
If your mortgage amount does not cover the difference between what the lender requires and your home’s appraised value, private mortgage insurance may be your best bet. This will give the lender some peace of mind that you won’t default on the loan.
Debt-to-Income Ratio Requirements for Jumbo Mortgages
When applying for a jumbo loan, lenders typically require that your debt-to-income ratio (DTI) not exceed 40%. Your DTI is calculated by dividing all existing outstanding debts – including your mortgage – by your gross monthly income.
Borrowers typically need a Debt-To-Income ratio (DTI) of no less than 36% in order to qualify for a jumbo mortgage. Furthermore, they will likely need additional assets like savings accounts and non-liquid investments such as stock.
Jumbo loans are ideal for home buyers looking to purchase a multi-generational residence, where multiple family members live under one roof. They’re also popular among single homebuyers who require larger mortgages in order to make their purchase more affordable.
In today’s competitive jumbo mortgage market, you must do your due diligence to find the most competitive rates and terms on a loan. Furthermore, make sure your lender puts your needs first by researching lenders who truly prioritize customer satisfaction.
When applying for a jumbo mortgage, you’ll need to provide an extensive list of your assets and current income. Furthermore, the lender will perform a rigorous credit check in order to guarantee that you are financially stable and won’t default on your mortgage payment.
In the competitive jumbo mortgage market, you’ll need a strong financial profile to be eligible. Your credit score, down payment amount, debt-to-income ratio and earnings all play an important role in determining the interest rate on your jumbo loan.
