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A Jumbo loan is a type of mortgage loan that is larger than the conventional conforming loan limit. This type of mortgage may be a good choice if you have excellent credit. However, there are several factors that must be considered when obtaining a Jumbo loan. These include credit score, income, down payment, and assets.
Credit Score
When you want to apply for a jumbo loan, you’ll need to have a high credit score. This type of loan is not available to everyone, and the minimum credit score required varies from state to state. For the most part, a jumbo loan will require a credit score of 700 or higher. However, some lenders will work with borrowers with a lower score.
When applying for a jumbo loan, lenders pull a borrower’s entire credit report from all three credit bureaus. They then look at the middle score of the three scores for each borrower. Co-borrowers’ scores will be calculated based on the lower score. That means that if you’re a married couple with three children, your credit score would need to be around 730. However, some lenders will work with applicants with a lower credit score as long as they have at least two incomes.
Income
Jumbo loans are larger loans that are not eligible for purchase by Freddie Mac or Fannie Mae. Because of this, lenders have to sell them on the secondary market. However, the higher the amount of the loan, the greater the risk that a lender will take. Because of this, jumbo lenders require a greater amount of cash reserves in their borrowers’ bank accounts. This reserve is usually equivalent to six or twelve months’ worth of mortgage payments, homeowner association fees, and taxes.
Typically, borrowers with jumbo loans are high-income earners. These borrowers typically have excellent credit histories and higher FICO(r) scores. They also tend to contribute to retirement accounts.
Down Payment
If you want to purchase a house that is larger than you can afford to pay in cash, you may need to consider a Jumbo loan. These loans are designed for people who are unable to qualify for a conventional loan because they carry a higher risk for lenders. This type of loan can be used for primary residences, vacation homes, and investment properties. However, you must have ample cash on hand to cover the monthly payments on the loan. To prove this, you should provide the lender with two years of W2 forms or 1099s, and some lenders may require an additional appraisal of the property.
While most lenders require a 20% down payment on a jumbo loan, you can negotiate a lower amount if you have better credit. Some lenders allow borrowers with as little as a 680 credit score, while others will require a score of 740. A 20% down payment on a $750,000 home will require $150,000 of your own money. This is before you factor in closing costs.
Assets
As the home mortgage market becomes increasingly competitive, the number of lenders offering jumbo loans is likely to increase. However, these loans are more risky than conventional mortgages. As a result, jumbo loan rates tend to be higher. Although, they do still trade at a premium to conforming rates.
Before applying for a jumbo loan, make sure that your personal financial documents are in order. These documents should include your most recent pay stubs, 1099 and W-2 forms, tax returns, and bank statements. It is also important that you have at least six months’ worth of cash on hand. In addition, it is helpful to have your mortgage preapproval checklist completed before you apply for a jumbo loan.
A minimum credit score of 680 is required for a jumbo loan. You must also have a low debt-to-income ratio to qualify. The lender will also check if you have sufficient assets to cover a year’s worth of loan payments. It is important to keep in mind that jumbo loans typically require a 20 percent down payment, which means that you must have some assets on hand.
Interest Rates
In the case of jumbo loans, interest rates vary depending on the equity involved in the transaction. Usually, borrowers who put at least 20% down payment get better rates. However, many high-end buyers are reluctant to tie up their cash. Therefore, one option to access equity in a home is a home equity line of credit. This option allows the borrower to draw funds from the equity in their home without a new mortgage. However, borrowers should keep in mind that they will have to make payments on the line of credit on a monthly basis.
While jumbo loans may be riskier than conventional loans, there are advantages to them. They are better suited for home buyers who have high property values and can afford higher monthly payments. However, jumbo loans will require a higher down payment than conventional mortgages. In addition, the interest rates on jumbo loans will be higher than the interest rates on conforming mortgages.