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3 Signs You May Qualify for a Jumbo Mortgage

Admin • Sep 22, 2020
Child Running Inside New House — Costa Mesa, CA — Secure One Capital
Conventional loans have limits on the amount you are able to borrow. But what if you want to purchase a property in an expensive housing market or for an above-average price tag? A jumbo mortgage allows you to purchase these types of homes because the loan value exceeds the limits set by the Federal Housing Finance Agency.

Jumbo loans carry greater risk for lenders because they are not guaranteed by Fannie May or Freddie Mac for protection from loss if you default. For this reason, more stringent loan requirements exist to help determine whether a borrower is qualified for that loan. Wonder if a jumbo loan is in your future? Discover three signs you may qualify for a jumbo loan.

1. You Have the Cash for a Down Payment
Most homebuyers plunk down money toward the purchase of a home to lessen the loan amount and prove they are financially solvent. Many lenders and loan products require a down payment. Most conventional home buyers aim for 6–12% of the purchase price.

However, a down payment on a jumbo loan will be much larger than that of a conventional loan for two reasons:
  1. Jumbo loans have a much higher loan value, which naturally increases the down payment you pay. For example, a 6% down payment on a $200,000 home is a mere $12,000, which rises significantly to $45,000 for a $750,000 home.
  2. Jumbo loans require a higher down payment percentage. Expect to pay 10–20% for a down payment rather than the standard 6–12%.
IF you have substantial cash reserves for a jumbo loan down payment, you may be ready for this type of loan. Keep in mind that cash savings are not the only acceptable form of down payment. You may have other reserves you can utilize such as 401K retirement monies or gifts from friends. Or you can simply liquidate other property for your down payment.

2. You Have a 700 or Higher FICO Score
FICO credit scores are a good indicator of your reliability as a borrower. For this reason, a jumbo loan requires a minimum score of 700 to qualify. Of course, if your score soars beyond 700, that lender will be more likely to show some leniency towards your down payment requirement. For example, a 740 score could mean you only need to come up with 10% rather than 20%.

Sometimes, an extremely high credit score lets you shop around for a jumbo loan with a more desirable interest rate. Lenders often give you a lower interest rate for a great score, but the interest may come up a few points if you hover only just above 700.

Additionally, a very high FICO score means you can grab a higher loan amount. This advantage lets you consider higher-priced homes.

3. Your Debt-to-Income Ratio Is Below 45 Percent
Your debt-to-income ratio is a comparison of how much money you earn versus how much debt you have. To find this golden number, divide all your monthly debt obligations by your monthly income. Lenders see this ratio as a measurement of your ability to repay a loan.

Most lenders look for a ratio below 45% to qualify a borrower for a jumbo loan. Remember, this ratio represents the percentage of your monthly earnings you will use to pay debt. Since jumbo loans are not guaranteed by Fannie or Freddie, lenders carry the risk instead. Those lenders want to know you can handle a large monthly payment.

Convinced you're ready for a jumbo mortgage for your dream home? Contact the expert advisors at Secure One Capital Corporation for more information about a jumbo mortgage.

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