What to Know About Jumbo Loans

What Home Buyers Need to Know About Jumbo LoansWhen purchasing a new home, most people are going to use a home loan rather than buy in cash. However, conventional home loans only go so far, and they don’t cover everything. What should home buyers do if they can’t use a conventional loan? The answer is a jumbo loan. These loans are specifically made for home buyers who need to borrow a large amount of money. Here is what buyers need to know about using a jumbo loan.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

What is a Jumbo Loan?

A jumbo loan is exactly what it sounds like: it’s a loan that is larger than conventional home loans. Specifically, in most locations, the least amount of money a jumbo loan can be used for is $510,400. However, in some areas that cost more like southern California or New York City, the minimum is raised to  $765,000.  There can also be variance in other areas, so homeowners need to find out their locale’s jumbo loan specifications to see if they need one or not.

Qualifying for a Jumbo Loan

Like with any home loan, home buyers need to meet a certain set of qualifications before they will be approved for a jumbo loan. Because jumbo loans are so much larger than conventional loans, the criteria is much more strict. Here is what an applicant must do in order to be approved for a jumbo loan:

  • Have a FICO score of at least 700, though some lenders will require at least 720
  • Have a debt-to-income ratio (DTI) that is no more than 45%
  • Have money saved in the bank, though there is no official minimum amount set
  • Get the home appraised to ensure that it’s worth the money being borrowed

The criteria is going to vary depending on who the buyer is borrowing from. When applying for a jumbo loan, buyers should ask their lender for everything they need to do before applying to ensure that they have everything in order.

Other Differences Between Jumbo Loans and Conforming Loans

As mentioned previously, the most obvious difference between jumbo loans and conforming loans is the amount of money they will cover. However, there are a few other key differences that home buyers should know about, because it can be easy to think that jumbo loans and conforming loans are exactly the same minus that one factor.

Jumbo loans require larger down payments than conforming loans. While the down payment for a conforming loan will ideally be 20%, they can also be as low as 3%. For jumbo loans, home buyers are expected to pay over 20% down, but some lenders will allow as little as 10%.. Jumbo loans also have a higher chance of having increased interest rates. The exact interest rate will depend on a few factors such as the lender, the buyer’s finances, and the condition of the market.

Jumbo loans also have higher closing costs and require additional fees because of the extra steps required to qualify for one. Closing costs typically cost 2-5% of a home’s total selling price, so home buyers need to take that into account. For a $600,000 home, the closing costs will be an additional $12,000-$30,000 required to be paid at closing with the down payment.

Jumbo loans are extremely useful for buyers who want to purchase an expensive Hudson County home, but they have many differences from conforming loans. Home buyers who want to use one need to know how they differ before they apply to avoid any surprises down the road.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Post a Comment