Are you finally making enough money that you are ready to buy your dream home? If so, you may have discovered that the size of the loan you need makes it a bit too expensive for a conventional loan. Jumbo loans are designed to give sellers the ability to buy an expensive home with a much bigger loan to cover the mortgage. Here is what you need to know about them.
What Is A Jumbo Loan?
Jumbo loans have changed over the years. While they were originally limited to loans of $417,000 back in 1970, that has changed to $729,750 back in 2010.
These types of loans are easy to get if you meet the requirements, even though they are considered a higher risk than a traditional loan. If you get a jumbo loan, expect that you will pay a higher interest rate because of the risk involved by the lender
What Are The Down Payment Requirements?
There is a misconception that jumbo loans require the buyer to have a down payment of 20% of the home's value. This is not true since the mortgage lender determines how big of a down payment is required. While many may require a downpayment of 20%, it is not a federal requirement to receive a jumbo loan.
You can expect to pay a higher interest rate on the mortgage with a lower down payment, but the same can be said of a traditional loan as well. In general, a bigger down payment will give you a lower interest rate. That's why it helps to shop around with different lenders to compare interest rates
What Are The Credit Score Requirements?
These jumbo loans are risky, so as you may expect, the credit requirement will be higher in order to get one. Every lender will look at your credit score when deciding how risky you are. That's why it is so important to look at your credit report prior to buying your dream home and fixing potential problems with the report.
It's common for a lender to require the credit loan for a buyer to be around 720 or more in order to qualify, with some lenders having even higher requirements than that
What Are The Debt-To-Income Ratio Requirements?
The lender will look at your previous debts and determine your debt-to-income ratio. You'll be viewed as less risky if you have fewer existing debts, with a general threshold of a 38% debt-to-income ratio being the cutoff for a jumbo loan. This means that your monthly mortgage payment should not exceed 38% of how much you make each month before taxes are taken out.