by Jacques Poujade
Jumbo loans, also known as jumbo mortgages, are mortgages that exceed normal limits developed by the Federal Housing Finance Agency (FHFA). Conventional mortgages can be guaranteed by government housing agencies like Fannie Mae or Freddie Mac. However, jumbo loans don’t qualify to be secured because of the high amounts exceed the limits that have been set forth.
You might wonder what the purpose of jumbo loans are if they can’t be secured or guaranteed by government agencies. Jumbo loans are typically used when financing luxury, high-cost properties. These loans are riskier for lenders, because if a buyer defaults, the lender stands the chance of losing a significant amount of money.
In order to obtain a jumbo loan, a credit check is the very first step. Most prospective lenders are looking for a credit score of 700 or higher. Your debt-to-income ratio will also be checked, because even if your credit score is acceptable, if your debt-to-income ratio is higher than 35-43%, your application may be denied.
Furthermore, you need to prove that your income is adequate enough to cover the hefty payments that you will likely have. Lenders will verify check stubs, tax forms, and bank accounts to determine whether or not you have enough cash on hand and/or liquid-able assets. Cash on hand is required to meet or exceed the amount equaling six months of mortgage payments.
You will also need to have a large down payment. This amount was previously 30%, but guidelines have recently been loosened, so 20% down is about average.
To apply for a jumbo loan, you must first ensure that you have excellent credit. Checking your credit score in advance might be a good idea, which will give you the opportunity to conduct any credit repair that may be necessary. By checking your credit and finances prior to applying for a jumbo loan, you can increase your chances of approval, since you’ll have the opportunity to make any improvements before submitting your application.
If you’re looking to apply for a jumbo loan with an online lender, LendPlus.com is an excellent choice. Our rates are low, and our experienced lenders are ready to answer all your questions and assist you in any way possible.
So if you’re on the market for a high cost property that costs a half million dollars or more and you’re unable to pay cash, obtaining approval for a jumbo loan is necessary. Once you’re approved and enjoying your new property, you will realize that jumbo loans aren’t as complicated as they may have appeared to be, and in fact, they can be the perfect way to help your dreams come true.