Are you looking to upgrade your living situation for you and your family? Is having access to high end amenities and having more livable space important to you? Well maybe a jumbo loan is the perfect loan for you.
What is a Jumbo Loan?
Jumbo Mortgages offer a unique opportunity for borrowers to buy homes that exceed the conforming loan limit of $453,100. Jumbo mortgage loans have a little stricter lending requirement than other programs but still packs a punch when it comes to upping your buying power. A common misconception about jumbo loans is that you need a 20% down payment in order to qualify. The reality is jumbo financing allows you to purchase with as little as 5% – 10% down with a little creative financing. Yes, that’s right! 5% – 10% down, not the traditional 20%. This is accomplished by establishing a 1st mortgage at the conventional loan limit of $453,100 and 2nd mortgage for the rest of the balance. This “combo loan” avoids mortgage insurance and usually offers the lowest fixed payment.
What are the Pros and Cons of Jumbo Mortgages?
Jumbo Mortgage Pros
This allows for larger loan amounts and in some cases even better interest rates. As well as that, some creative options are available to use with a 2nd mortgage.
If you are a high-income earner with a solid financial history, credit score and larger down payment this may be the right loan for you.
If you have a good credit score above 680 you will be more likely to qualify.
You can get a Jumbo Loan with as little as 5%-10% down in some cases if your credit score is higher than 680.
The total amount you want to finance, credit score, and your down payment will play a major role in whether you get financing.
Jumbo Mortgage Cons
Not guaranteed by the Federal Housing Administration or the Department of Veteran Affairs.
Qualifying for a Jumbo mortgage can be tougher than regular loans.
If your credit score is below 680 you will likely have to put down a much larger down payment to offset the risk of a lower credit score.
You will need at least 6 months of mortgage payments in an asset account.
If you are looking for a loan above $5 million you may have to look to a portfolio lender that offers super jumbo home loans. Be sure to consult with your licensed mortgage advisor for your best option.
What are the Requirements for a Jumbo Mortgage?
Income - Your monthly mortgage payment, including taxes and fees, should not exceed 36% of your total income. If you combine this with your other debts ideally it should not exceed 43% of your gross monthly income.
Financial History - Your lender will want to look at two years of income, including W2’s and pay stubs. If you’re self-employed, your lender may require profit & loss statements or tax returns. If self employed using bonus or commission that trending upwards is a plus
Credit Score - Your credit score (FICO) should be 680 or above. If your credit score falls below this, you may have a difficult time acquiring this type of loan.
Down Payment - Traditionally it’s been 20% of the cost of the home. The good news due to improvements to the Jumbo program you can qualify for as little as 5% – 10% down.
Cash reserves – Typically you want to have at least six months’ worth of mortgage payments available in a liquid account (think checking, saving, retirement accounts).
Sales Price - Loan limits for jumbo loans in most counties are over $484,350.
How Long Should You Expect to Wait for a Loan to be Approved?
Usually you can expect to wait from 2 – 3 business days. If further information or documentation, which validates the accuracy of your approval, is needed, it may cause delays. The faster you provide accurate information the shorter your wait will be. The lender reviewing your profile will request an appraisal of the property, your credit report, verification of employment and financial history. To avoid delays make sure that you meet the lenders documentation requests promptly, including your up to date records.
What You Need as a Down Payment for a Jumbo Loan
20% down payments used to be commonplace for Jumbo loans but that’s no longer the case. Today you can qualify for options with as little as 5% – 10% down so expect this amount. Keep in mind, your Mortgage Advisor will help you to determine what your upfront costs will be. So, consider the down payment, closing fees, appraisal fees and home inspection fees to be included in this amount.
What is the Interest Rate and Annual Percentage Rate on a Jumbo Loan?
Keep in mind that jumbo interest rates are higher than conventional rates. That’s why breaking up you loan into a 1st and 2nd mortgage can provide you with a lower rate and overall lower payment for your new mortgage.
There is no set number. The APR is determined by taking the total amount you are borrowing, including closing fees, and spreading it out over the term of the loan. This is the true cost of your loan including the interest you are expected to pay over the amortization period. This is usually 30 years for Jumbo or Super Jumbo loans.
Will You Get Penalized if You Pay Off the Mortgage Too Soon?
Make sure you check with your lender to ensure there will be no penalties for paying your loan off sooner than expected. Don’t get caught with having to pay penalty fees on your loan. The Moreira Team believes that no loan should have a prepayment penalty for early payoff.
Myths About Jumbo Loans
Myth 1 – You will have to wait too long for approval Paperless technology systems have reduced waiting times for approvals considerably. As long as your documentation is in order you will get the loan you deserve. There shouldn’t be any adverse delays in the processing of your loan.
Myth 2 – Your credit score is all that matters Jumbo lenders focus one aspect of their approval on your FICO credit score. In reality, it’s your financial stability and history that is the key factor to your approval. If you are consistent with paying your bills on time and show a positive history of payments your credit score will reflect this. Having stable work history and income is also a big factor in getting your loan approved fast. Obviously, if you show a pattern of late payments this may have a negative impact on your loan being approved.
Myth 3 – Expect more paperwork The documentation needed might be a bit different but is very similar to other loan applications.
So which is better for you? Fixed or Adjustable Rate Mortgages?
The easy answer is that it depends on how long you expect to live in the home. Also, the current interest rate patterns at the time of closing will dictate the rate you choose.
Jumbo Loan Checklist
When you set your phone meeting with your jumbo mortgage advisor, be prepared. Here are the documents you want handy when you have your no obligation consultation.
Pay stubs for the last 30 days or most recent leave and earning statement
W2s for the last two years for all borrowers and all employers
Last two years of complete tax returns (if self-employed)
Government issued ID (driver’s license or id card)
Most recent bank statement (all pages)
Purchase contract (If executed)
Be sure to ask your Jumbo mortgage adviser for the specific documents needed for your unique mortgage situation.
Jumbo Loan Pre-Approval Letter
Once your Jumbo mortgage advisor has the proper information in hand and you have completed the application, they will complete your approval and go over all the details with you. You will also receive a pre-approval letter for you to start shopping for your new home. This is a critical step since it will let sellers know you are serious and are approved to purchase their home. Your realtor will use the pre-approval to help negotiate and get you the best deal on your home.
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