Home values have risen over the past year creating an increase in the demand for jumbo home loans. A jumbo loan is anything over the conforming loan limit of $417,500. In California and other metropolitan areas, it is extremely easy to go above this dollar amount when purchasing even a middle class home. Homes that are considered luxurious or high end are in the millions even after the housing bubble burst. Homeowners with large families or high end taste may find themselves in a position where the only houses they want to buy are well over the conforming loan limit.
When you are purchasing a home that is over the conforming loan limit you won’t be able to get a traditional home loan unless you have a large down payment that takes you down to the loan limit. This has made it difficult for some people to qualify for the home they have always dreamed of. Mortgage lenders have come out with jumbo home loans to help people that are in this situation.
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Jumbo home loans have different underwriting processes than a traditional loan because they are not backed by the FHA or VA,and they are not sold to Fannie Mae or Freddie Mac after they close. Jumbo loans are typically held by the mortgage lender that issues them. That means they keep the loan in their portfolio instead of selling it on the secondary market. Some companies will bundle jumbo loans to sell,but this is dependent on market demand. Since a mortgage lender will typically keep the loan in house,they are carrying all of the risk and carrying it on a large loan amount. This means that underwriting standards are tighter than a traditional conforming loan.
Typical Guidelines for Qualifying for a Jumbo Home Loan
• Good to Excellent Credit – They will review your credit history to see if you have had any late payments, collections, judgments, or foreclosures. Good credit is anything over 680 where excellent credit is above a 720 FICO score.
• Down Payment – You will need to make a down payment in order to qualify. The percentage of your down payment is largely determined by the homes purchase price. For example if you are buying a home for $1 million or less the down payment requirement is typically only 20%. If you are purchasing a home for over $5 million most lenders will require at least 30% down.
• Income History – You will need to demonstrate solid income history that demonstrates your ability to continue making the same amount of money you are today.
• Reserves – The mortgage lender will require reserves to cover your mortgage payment for a period of time. They generally just look at how much you have in savings or other cash assets. This is to make sure that if you could no longer work or your income level changed you would be able to make the mortgage payment while you recovered financially or sold the home.
Now is an excellent time to look for your dream home and secure a jumbo home loan. Home sales dip at the end of the year as people are focused on the holidays. This provides a better environment for buyers to negotiate. Before you start looking contact your mortgage banker to get pre-approved so you know exactly how much you can qualify for.
