A Jumbo Loan is specifically a loan that is above the “Conventional Loan” amount limit of $726,000. This maximum loan amount limit has been established by Fannie Mae and Freddie Mac and is subject to change over time with home price fluctuations.
These two government-sponsored enterprises have specific requirements in place that determine if they can purchase a loan from a banker or lender. There are many different guideline requirements that make a loan a “conforming loan,” and the loan limits are merely one of the guideline requirements.
Does that mean a Jumbo Loan is a bad thing? Not at all, but lenders and mortgage bankers consider them riskier to make since it comes down to “putting all your eggs in one basket,” and there is always more risk in doing that. A good example would be that it is riskier to have three million dollar loans VS having ten $300,000 loans!
Considering a Jumbo Loan?
Given the fact that Jumbo Loans are a bit riskier, qualifying for a Jumbo Loan is also a bit more complicated. Let’s list some important points to consider when looking into getting a Jumbo Loan:
- Timing can be significant. Market conditions change and supply and demand for these types of loan products change regularly.
- Be prepared to pay a higher rate for these loans. When the lender is taking more risk that comes at a higher rate or cost. Larger properties may be harder to sell off and you pay for that risk.
- Down payments for Jumbo Loans at a minimum require 10%. Jumbo loan down payment guidelines can fluctuate, so be sure to check with your loan officer to verify.
- Have your paperwork, income, and expense documentation well organized for this type of loan. This is a good rule of thumb when trying to qualify for a Jumbo Loan. You will be required to explain your monetary situation in detail. Be prepared for any potential questions about your ability to repay the loan.
- Since Jumbo Loans come with a sizable monthly payment, be prepared to thoroughly discuss your business and employment situations. You will need to prove your competence regarding repayment.
- Some underwriters will perform additional quality control research, for potential other properties you own, businesses you own, etc. Be prepared to explain anything that could potentially impact their decision.
- Documentation of your assets is critical in relation to your income. Have asset and investment correspondence to support your income. Have a strong paper trail on all checking accounts for all deductions.
- Typically you will need an above average credit score along with a reasonable borrowing history. You are also required to possess a positive management and debt payback history.
- In some cases, if your loan amount is above $1 million the lender may require 2 appraisals on the chosen property to help reduce the risk due to inaccurate value. This also increases and ensures accuracy.
- Finally, the borrower’s overall profile and supporting documents need to make sense. It becomes a challenge if your lifestyle, assets, credit history, and income potential aren’t following a positive pattern when compared to other applicants.
For professional and knowledgeable Jumbo Loan mortgage guidance, contact us. Our experience can guide you through the process and together you can be as prepared as you need to be to go through the approval process for a Jumbo Loan.