What You Need To Know About a Jumbo Loan

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In 2014, nearly a quarter of all mortgages were jumbo loans, the Washington Post reported, noting that the figure was the highest it had been since people started tracking that information. A jumbo loan is pretty much just what it sounds like a mortgage that is much bigger than the average mortgage.

Typically, the Federal Housing Finance Authority restricts the total amount of a mortgage that Fannie Mae or Freddie Mac can purchase. These conforming mortgages need to be lower than $417,000 in most areas, as of 2016. In places like Washington, DC, where homes cost more, a conforming mortgage needs to be less than $625,000. Any loans above those amounts are considered jumbo loans and have their own set of rules.

What you need to get one

A jumbo loan can be riskier for a mortgage lender since it is putting up a higher amount of money up front. For that reason, there are typically a lot more requirements when applying for a jumbo loan than for a conventional mortgage.

One of the first things you need to get a jumbo mortgage is a sufficient level of income. You’ll need to show that you have the money coming in to comfortably pay back the loan. Typically, you’ll need to show pay stubs and bank statements for the past 30 days and two years’ worth of tax returns. Most jumbo mortgage lenders also want you to have at least six months’ worth of housing payments tucked away in the bank or in the form of some other liquid asset.

Your credit score is also very important when applying for a jumbo loan. Usually, the minimum score you can have is 680, though some lenders have higher score requirements. Jumbo loans are typically qualified mortgages, meaning that you need to have a debt to income ratio that is lower than 43%.

Down payment details

Surprisingly, given all the other requirements, jumbo loans don’t always require a hefty down payment. Although your lender would probably love it if you put down at least 20%, the Washington Post noted that there have been recent cases of people putting down just 10 or 15%. There is a trade-off when it comes to making a lower down payment, though. To qualify for less money down, you typically need to have a substantial amount of money in cash reserves. Depending on the requirements of your lender, that amount can range from 6 months’ worth of housing payments to up to 24 months’ worth.

Jumbo loans aren’t the right choice for every borrower. But, if you live in a high-cost area, have excellent credit, and enough cash in the bank, a jumbo mortgage can make sense for you. To learn more about jumbo loans, contact a mortgage specialist today.

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