What Is a Jumbo Loan And How Can I Qualify?

What is a jumbo loan? Many people are unfamiliar with this term. Read this article to learn about jumbo loans and how you can quality.

Today’s jumbo mortgage rates are at their lowest since 2005. You may be wondering if the loan you have in mind is considered a jumbo loan, and how you can qualify. Whether you’re a first-time homebuyer or looking into additional investment property, you need to know: “What is a Jumbo Loan?”

“What is a Jumbo Loan?” Read on to discover if a jumbo loan is your best choice and what qualification means for you.

What is a jumbo loan?

• Also called a “non-conforming mortgage.”
• A loan that exceeds the conforming loan limit set by the Federal Housing Finance Agency in your county.
• If you are seeking a loan greater than the conforming loan limit of your county, you are in the range of a jumbo loan.
• Generally used to buy a luxury or high-priced home, or a property in an area with higher than average home values.
• Typically require two appraisals instead of one due to the higher risk to the lender.
• Generally require higher down payments: 10% – 30% for home purchases.
• Often require a credit score of 700+, a debt-to-income ratio of less than 42%, and 6-12 months of payment reserves.
• Can carry higher interest rates than a traditional conforming mortgage.
• Don’t always require mortgage insurance.

Now I know the answer to “What is a jumbo loan?” and I need one! How do I qualify?

Pre-qualify

Pre-Qualification is a simple step in the mortgage application process. You will generally supply the lender with information on your income, assets and debt. This information is evaluated and you receive a general amount that you could qualify for.

Get pre-approved

Pre-Approval includes a credit history check and verification of your income and assets. If these are all approved, you will receive a pre-approval letter. This letter shows that you are serious about purchasing a home and is a qualifier to work with most real estate agents.

Identify if you fall into one of the following categories:

These categories may influence your ability or decision-making process in securing a jumbo loan. Make sure that you take advantage of all opportunities available to you in your unique buyer situation.

I’m a first time home buyer

What is a jumbo loan for a first time home buyer?

Lenders need to be assured that a first-time borrower can navigate large payments, particularly if the lender previously rented a residence with lower monthly payments.

You may still qualify for some first time home buyer programs, although an FHA loan may not provide enough money if you are in need of a large loan.

I’m self-employed

What is a jumbo loan for self-employed buyers?

Self-employed buyers can qualify for jumbo loans, so don’t assume that you won’t qualify based on the fact that you are self-employed. Sometimes a Profit and Loss Statement can boost income qualifications in some mortgage scenarios. This enables the lender to take into account your company’s revenues and expenses.

I’m a foreign national

What is a Jumbo Loan for a foreign national?

If you are living outside the United States, do not have a social security number, credit history, or employment history in the united states, you may still qualify for a jumbo loan.

Many lenders will work with foreign nationals who have proof of residency status, work history, and a healthy financial history. Lenders are generally happy to provide a loan officer who speaks your native language or provide a translator if needed.

I’m re-financing for a better mortgage

What is a jumbo loan in a re-finance situation? You may be able to do well with a

You may be able to do well with a jumbo hybrid adjustable-rate mortgage (ARM,) which are very popular with jumbo borrowers. These are loans that have fixed interest rates for a few years, then convert to a rate that adjusts yearly.

I’m in need of a reverse mortgage

What is a jumbo loan in a reverse mortgage situation? Most

Most reverse mortgages are Home Equity Conversion Mortgage (HECM) loans available to homeowners and homebuyers over the age of 62. They are generally used to turn home equity into cash in order to provide a comfortable income.

Unlike typical reverse mortgages which are federally regulated with market determined interest rates, rates for jumbo reverse mortgages are not set by the government. Since these mortgages can prove to be sensitive, shop around with reputable mortgage lenders to ensure that you are securing a fair deal.

Common questions about jumbo loans

Should I choose a traditional (conventional) or jumbo loan?

Some buyers find themselves in the position to choose between a conventional or jumbo loan based on the price of the home. What is a jumbo loan in the context of a conventional, combination, or jumbo loan?

The Conventional loan

• These loans are subject to the aforementioned conforming loan limits.
• These are loans that are not backed by the government, such as the Federal Housing Administration (HSA) or the United States Department of Housing and Urban Development (HUD). This means that investors buy these loans on the open market.
• Expect to come to the table with a 5% down payment, excellent credit and consistent, verifiable income.
• These are loans that are considered lower risk because they feature borrowers with higher credit scores.
• Mortgage insurance payments on these loans are stable until cancelation.
• The term for these loans generally spans ten to thirty years.
• This is an ideal choice for a home you plan to keep for ten or more years due to mortgage insurance options.

The Combination loan

• Combination loans can be a great choice if you want to stay below the conventional loan limits.
• In this case, the buyer takes out two smaller loans instead of a jumbo loan. The mortgage splits, and both are below the conventional loan limit.
• Most lenders require sterling credit, large down payments and substantial cash reserves to issue a combination loan.

The jumbo loan

• Some properties naturally require a jumbo loan.
• The amount of the loan is agreed upon between the lender and the borrower, and is not limited by any other agency.
• Jumbo loan borrowers should expect a more thorough audit of income, assets and debt. These loans are harder for lenders to sell, so they are considered higher risk.
• Lenders typically require a credit score of 700 or more. Elevated terms are available to buyers with credit scores above 740.
• A debt to income ratio below 45% is a key factor in identifying eligibility for a jumbo loan.

How do I choose a lender?

It can be challenging to choose between a mortgage broker, Quicken loan or bank mortgage, but here are a few simple steps to help you make the best choice for a jumbo loan lender:

• Check mortgage rates. There are many reasons to select a mortgage lender, but this is a great place to start.
• Talk to your bank or credit union about home buyer incentives, but don’t expect lower rates or discounts as a member.
• Interview a few lenders. Your home buying experience will be more enjoyable with someone who can explain the jumbo loan options in language that you understand. You should never feel uncomfortable or pressured during the loan process.
• Look for an experienced loan officer who can navigate the moving parts of the loan process from application to closing. Check reviews and backgrounds, and don’t settle for a weak loan officer who can put you in a nightmare situation.

Should I select a fixed rate mortgage or an adjustable rate mortgage (ARM) for my jumbo loan?

There are numerous pros and cons to each mortgage choice. Your financial situation, current interest rates and how long you plan to keep your home will influence your decision.

• Fixed Rate Mortgage
  • A fully amortizing loan that features an interest rate that is set at the beginning of the loan and remains static.
  • Choosing a fixed rate mortgage gives you a degree of payment security, because your payments will remain constant throughout the life of the loan.
  • Can prove to be expensive in areas with high home values.
  • A great choice when interest rates are low.
  • Ideal for a home you plan on keeping for the life of the loan.

• Adjustable rate mortgage
  • Features an interest rate that fluctuates based on the market index. Many will begin with a lower interest rate than a fixed rate mortgage, but the payment amount goes up when the introductory period ends.
  • Available to buy a larger home than you would otherwise buy based on initial lower payments.
  • Ask your qualified lender how high or low the interest rate could go or how frequently it will adjust. Determine if you would be able to maintain the loan if the rate and payment hit the maximums.
  • Ideal for a home you don’t plan on living in for more than a few years.

You’re ready to apply!

We would be happy to help you move forward with this important decision by applying in person or online. Have questions that weren’t answered here? Feel free to contact us or leave a comment.