It’s relatively easy to get a general idea on what it takes to qualify for a conforming loan, a loan that conforms to Fannie Mae and Freddie Mac’s lending guidelines. Nearly two out of every three conforming mortgages issued today are of the Fannie and Freddie variety. Each conforming loan meets these standards and is available to nearly every mortgage company.
That’s why it’s easier to get general qualifying guidelines because they’re essentially everywhere. But with Jumbo loans, those with loan limits above $510,400 in most locations, getting information may be a bit more difficult.
When someone is buying a higher end home and needing jumbo financing, it’s best to speak with an experienced jumbo loan officer who can provide all the necessary qualifying details while at the same time dispelling any myths one might have heard. Jumbo loan programs follow the same basic approval guidelines as conforming loans. If someone is taking out a jumbo loan for the first time, there may be some incorrect notions about qualifying for a jumbo mortgage. Here are five of them.
High Interest Rates. Jumbo rates today are in fact slightly higher than conforming ones but not as high as one might imagine. Jumbo rates are anywhere from 0.25% to 0.50% higher than a conforming one. For “super jumbo” loan amounts, say those over $2 million, the difference will be a bit higher. But what consumers won’t find are jumbo rates that are 2.0% or 3.0% higher. Decades ago jumbo rates were much higher than conforming loans, but not so much today.
During the period immediately after 2008-2009, many lenders weren’t all that excited about getting into the jumbo market. When a lender approves a jumbo loan there is no secondary market in which to sell the loan. The lender assumes the entire risk of making the loan. After the financial fallout, many lenders were reluctant to get back into the jumbo market.
As the economy and the housing market overall stabilized and lenders issued loans that documented income, employment and credit, sensible lending returned and lenders began to slowly return to financing higher end homes. This stabilization reduced the risk of making a jumbo loan and rates began to trickle back down to their conforming cousins.
Large Down Payment. Most jumbo loan programs today ask for a down payment of at least 20%. With a 25% down payment the rates and terms can be slightly better. Bigger jumbo loans, those with balances greater than $1 million can require a larger down payment and a bit more when the loan approaches $2 million. Yet for loan amounts above the conforming limit and up to $1 million, the standard 20% down payment is needed.
But there is another way to avoid making a 20% or 25% down payment. That way is to utilize two different mortgages for the same transaction. A buyer can take out a first and a second mortgage and avoid the 20% requirement. The 20% down payment requirement stems from the lack of any private mortgage insurance policy available for jumbo loans.
With two loans, the buyers can take out the first mortgage keeping it at 80% of the value, a second at 15% of the value and make a down payment of just 5% of the sales price. Lenders refer to this way of financing as an 80-15-5 combo loan. The “5” represents the buyer’s down payment, the 15 is the second lien amount and the first is still at 80%. This combo loan set up also works for buyers making a 10% down payment.
Read more about all the latest requirements on the Jumbo Purchase Page. Here you will find all the loan amount limits, credit, and down payment requirements.
Limited Loan Choices. Again, as the mortgage market recovered and lending activity returned, more loan choices were made available. A few jumbo lenders in urban areas might offer jumbo loans but only with an adjustable rate loan and for a relatively short period of time. Today jumbo lenders offer a wide range of financing options, much like there are for conforming loan amounts. Jumbo loans are offered in both fixed and variable rate terms. Fixed rate terms can range from 10 to 30 years. There is a 15 year jumbo term available, for example.
Variable rate jumbo loans are most common in the “hybrid” variety. A hybrid jumbo loan is still a variable rate mortgage, but the initial rate is fixed for a predetermined period, say three or five years. At the end of the initial fixed period, the loan turns into an adjustable rate mortgage that can adjust every six months or a year. The attraction of a hybrid is the initial fixed rate is lower than prevailing fixed rate programs.
Super High Loan Minimum. We touched on this one earlier but jumbo loans don’t start at $1 million dollars. Instead, the minimum amount for a jumbo loan is anything above the conforming loan limit of $510,400. When buyers shop for a home and they’re looking at homes in the $550,000 to $700,000 range, they might explore ways to get their first loan at 80% of the sales price to get the rate a little bit better but that’s not as important as it used to be.
Hard to Qualify For. Jumbo loans are a bit more difficult to qualify for but not by very much. Yes, the credit scores need to be 700 for buyers not putting down 20% but doesn’t have to need to be perfect for buyers with a large down payment. Credit scores range from 300 to 850 but for someone who has paid their credit accounts on time and has used credit for several years the 720 score is fairly easy to achieve. The higher the credit score the more flexibility the lender has when evaluating a mortgage loan application.
Jumbo loans ask for verification of sufficient cash to close, credit, minimum two-year employment history and debt-to-income ratios within guidelines but so do other loan programs. Jumbo loans used to be much more difficult to qualify for compared to today. For someone that is anticipating getting a jumbo loan but thinking qualifying would be too difficult, all it takes is a phone call to an experienced loan officer who can provide the details. In most instances, a jumbo loan approval is essentially the same to achieve compared to a conventional loan.
Want to learn more? contact Jumbo Mortgage Source by visiting https://JumboMortgageSource.com