What is a Jumbo Loan?
The Federal Housing Finance Agency, or the FHFA, sets certain limits to the loan amounts in a conventional mortgage. Jumbo loans are a type of mortgage that finances homes that fall above the financing limits set by the FHFA. Jumbo loans are mostly used for financing the purchase of luxury homes,
The guidelines for jumbo loans are set by the lenders, and both loan amount and loan terms can vary according to the lender. One of the most important things to keep in mind is that taking out a jumbo loan entails being responsible for a larger debt. Very often, borrowers tend to forget this risk factor while taking out the loan.
In fact, there are several aspects to consider before taking out a jumbo loan. For instance, how you will be repaying your debt, do the loan terms depend on specific market conditions, and how flexible are the loan terms if you find the need to extend your payment period. It is crucial to have a clear idea of all such factors before going ahead with a jumbo loan.
What are the Eligibility Requirements for a Jumbo Loan?
Like all loans, there are some very basic eligibility requirements to receive a jumbo loan such as the ones mentioned below.
A Valid Identity Proof
This is the basic requirement for all loans. You need to show a valid Social Security number or a driving license.
A Good Credit Score
A good credit score is an indication of your reliability when it comes to paying back loans. Since a jumbo loan involves a larger loan amount, lenders will consider applicants with an excellent credit score.
Low Debt-to-Income Ratio
The debt-to-income ratio is the total of all your debts divided by your income. Most lenders consider applicants who have a debt-to-income ratio of less than 50 percent.
A Stable Employment History
In order to prove that you are a safe bet, lenders will require you to submit proof of your employment history and salary details. Most lenders require that you have been employed with your current employer for at least 2 years.
Proof of Cash Reserves
Since jumbo loans entail large amounts of money, lenders will ask for documentation showing that you have the required cash reserves to make sure that you are in a position to pay back the loan amount.
What should you know before taking out a jumbo loan?
You Will be Required to put Down a Large Down Payment
Unlike other loans, due to the involvement of such a large debt, lenders will require you to make a large down payment. In conventional loans, the down payment is only 20 percent whereas, with jumbo loans, the percentage will vary according to the lender.
Jumbo loans come with high-interest rates and may vary depending on the market conditions in some cases. Despite this, you may find that some lenders offer reasonable interest rates. You simply have to explore a bit until you find a lender whose terms are best suited for you.
If you would like any more information about jumbo loans, don’t hesitate to contact us.