JUMBO LOANS
A JUMBO LOAN is one that has a bigger loan amount than a standard loan. Jumbo loans can be used to buy a primary residence, an investment property, or a vacation house. The maximum loan amount for a jumbo loan varies depending on the mortgage company and geography. Qualifying criteria might also differ. Because the jumbo loan market is smaller than the conforming loan market, you may need to hunt around a little more to get a mortgage. Jumbo loan rates frequently differ from conforming loan rates.
JUMBO LOAN REQUIREMENTS
LARGE INCOME
A low debt-to-income (DTI) ratio is often required, which is the percentage of your monthly income that goes toward debt payments. If your income is low and you have a lot of debt, you might not be able to get a jumbo loan unless you have an exceptional credit score or a large amount of reserves.
HIGHER CREDIT SCORE
The credit score needed for a jumbo loan is often greater than that of a conforming loan. The average is approximately 740, although some are as low as 660. However, if you are heavily burdened and have a bad credit score, obtaining a jumbo loan would be difficult.
HEFTY RESERVES
A jumbo loan generally requires a 10% to 20% down payment (and sometimes more). Anything less than a 10% down payment will almost certainly result in higher interest rates. Prepare to show adequate reserves, or liquid assets, to cover six to twelve months of mortgage payments.
PROS
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Can borrow more money in order to purchase a more costly property
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Interest rates on conventional loans are often competitive.
CONS
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A minimum of 10% to 20% down payment is required.
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Typically, a FICO score of 700 or greater is necessary.
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A DTI ratio of more than 45 percent is not permitted.
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You must demonstrate that you have large assets in cash or savings accounts.
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More detailed paperwork is usually required to qualify.
