Whenever you think about mortgages, you probably imagine that you need a seriously exceptional credit…
If you are in the market for a new home, you are probably doing your research to find a loan that works well for you and your family. You may want to consider a jumbo loan, depending on the type of home that you are looking at.
What is a jumbo loan?
A jumbo loan is used to buy a home that costs too much for a conventional loan. Depending on where you live, the local conforming loan limit is usually over $510,000, according to the Federal Housing Finance Agency (FHFA).
These loans are often riskier because these loans can’t be guaranteed by Fannie and Freddie. This means if the borrower defaults the lender isn’t protected against any losses.
Who qualifies for jumbo loans?
Because jumbo loans are so risky, lenders are much stricter than they are for conventional loans. If you are considering a jumbo loan, you will have to meet the following criteria:
• Credit scores. Most of the time, your credit score will need to be over 700. Some lenders require it to be higher than 720.
• Debt-to-income ratio. Lenders will take a hard look at your debt-to-income ratio to make sure that you can afford the loan. However, if you have some extra cash that you are using, they will be a little more flexible.
• Cash reserve. Most lenders approve jumbo loans if you have enough money in the bank. They may approve you if you have at least one year’s worth of mortgage payments saved up in the bank.
• Documentation. You may be required to fill out extra paperwork to be eligible for a jumbo loan. Besides your tax returns, W-2s, and 1099s, you may have to hand in bank statements and information about your investments.
• Appraisals. You may be required to go through multiple appraisals to ensure that the home is worth the cost.
What are the benefits of jumbo loans?
There are some benefits of jumbo loans compared to conventional ones. These include:
• Bigger and more expensive home. You can get a larger and more expensive home with a jumbo loan.
• Low down payments. You may be able to get a bigger home with less money down. You may only need five to ten percent down for a jumbo loan.
• Competitive interest rates. Interest rates for these types of loans have recently gone down. You might even be able to find a loan with a better rate than you would with a conventional loan.
• Ample flexibility. You can find a lot of flexibility with jumbo loans. There are some fixed year rates, as well as adjustable rates. You can change the length of the loan too, so you can find something that works well for you.
How do you know what loan is best for you?
As you look at your different options, it can be hard to figure out which is the best loan. Here are some things to consider.
• Can you afford the monthly payment? You must be able to afford your monthly mortgage payment before you commit to it. You don’t want to find yourself struggling to pay the mortgage after a few months.
• Did you get a good interest rate? A lower interest rate can make a big difference when it comes to your monthly payment. The lower your rate is, the more affordable your home will be.
• Are you happy with the terms of your mortgage loan? You may want to look at several options when it comes to your mortgage. If you can afford a shorter term, you may be able to pay off your home sooner. If not, a longer one is fine, as long as you have a low-interest rate.
Choosing the right mortgage is important so that you can afford the home that you want. Take your time, talk to multiple lenders, and see your options so that you know that you got a good deal!