Have you ever taken a moment to visualize your dream home or thinking about the size, structure, and preferred decor?
After considering all this, you might discover that your dream house is priced beyond the typical conforming mortgage loan rate your lender offers.
However, the good news is you can apply for a jumbo loan designed to cover all your mortgage expenses. By estimating your monthly mortgage payment using the LoanDepot mortgage calculator, you can quickly determine if you are qualified to receive a jumbo loan.
If you are ready to start living the American dream, here’s a look at what jumbo loans are and how you can qualify for one.
What are Jumbo Loans?
Jumbo loans, also known as jumbo mortgages, are used to finance real estate when traditional conforming loan restrictions imposed by the Federal Housing Finance Agency (FHFA) are exceeded.
Compared to conforming loans, they feature higher interest rates and incur more credit risks because they are specifically tailored for high-income individuals wishing to buy more expensive houses.
How To Qualify For a Jumbo Loan.
Jumbo loans have stricter requirements for approval than conforming loans since they carry higher interest rates and greater risk for lenders.
Here are some criteria you need to meet to get approved for a jumbo loan.
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Your Credit Score.
Your credit score must be high enough to qualify as a trustworthy borrower with a strong financial foundation and stand the chance of getting a jumbo loan.
Depending on the loan terms and your lender, your credit score should fall between 700-800.
Lenders will also analyze your credit report for errors, such as missed or late payments and bankruptcy. Having any of these on your report will make lenders hesitant to grant you a jumbo loan.
The best course of action is to hold off on applying for the loan until these have been removed from your record.
An easy way to boost your credit score rating before an application is to query your credit report, clearing any errors will spike up your credit score immediately.
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Down Payments.
The typical jumbo loan down payment ranges from 10% to 20%, higher than most conforming loans.
Although some lenders might allow lower down payments, this will result in higher fees and interest rates.
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Cash Reserves.
Another factor determining if you will be considered for a jumbo loan is the amount of cash you have in the bank.
After making a down payment, you must present documentation demonstrating that you have enough money to afford at least 12 months' worth of payments. Turning your dream house into reality takes a lot of money, and the bank needs to be assured you can easily finance it.
Jumbo loans include a significant level of risk. Thus, lenders take this seriously to avoid suffering a loss should you fail to make your loan payments.
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Your Debt-To-Income Ratio (DTI)
Your DTI calculates how much you make each month relative to how much you owe in debt.
This is how lenders assess your ability to repay loans you intend to take out and how well you handle managing your income.
A low debt-to-income ratio is crucial since it tells the lender about your cash flow and proves you can make mortgage payments.
If your credit score is low, a low DTI may help make up for it, and if your credit score is good, you may be eligible for a jumbo loan with a high DTI ratio.
While having access to a jumbo loan will help you realize your dream of buying a luxury house in an expensive area, remember that they come with stricter standards and larger payment schedules than conforming loans.
