The housing market saw gains last year that gave homeowners throughout the country equity in their homes for the first time since the housing bubble burst. This is fantastic news for homeowners that want to sell their home but can put additional strain on buyers. As home values rise above $417,000, buyers can no longer use a conventional home loan for the purchase unless they make a sizable down payment. Fortunately there are jumbo home loans available.
What is a Jumbo Loan?
Jumbo mortgage loans are for amounts over $417,000. There are jumbo loans that go past $10 million. These are the ideal solution for people that live in high cost areas, like California. They enable people to purchase an expensive home, while keeping more of their money in the bank.
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Most jumbo loans are held by the mortgage lender (bank) rather than sold on the secondary market. This allows for greater flexibility and relationship style lending. Since the bank holds the loan in house, they cannot turn around and re-lend that money to someone else. This makes the underwriting requirements stricter than if you applied for a conventional home loan.
Down Payment Requirements
Each mortgage lender has different down payment requirements that change based on your credit score and how much money you are trying to borrow. You can anticipate paying a minimum of 20% down, with the average being 30%.
Credit Requirements
In order to qualify for a jumbo home loan,you need to have a good credit score. The minimum is typically 720, while some mortgage bankers may go as low as 680. Since the lender is taking a greater risk,they are more cautious with whom they will lend the money to.
Cash Reserves
The mortgage banker will ask to see cash reserves in the amount of six months, or more, of your mortgage payment. For example if your monthly loan payment is $5,000 they may want to see $30,000 in cash reserves. The money is still yours,but it gives the lender reassurance that if something changes in your job situation you have a safety net you can use to make the mortgage payments.
Income History
You will need to prove your job and income history so prepare those documents prior to applying. This includes two recent pay stubs, two years W-2s, and two years tax returns. If you are self-employed, gather your business tax returns as well.
Appraisal
Your mortgage lender will order an appraisal prior to approving your loan application. The appraisal is important for two reasons. The lender needs to know that the price you are paying is actually the market value and they will check to see if other homes in the area are selling for a similar amount. Lenders avoid issuing jumbo mortgages in an areas where there are no other similar homes. For example if you want to purchase a $3 million home in a neighborhood where everything else is $400,000 that will raise a red flag. It suggests that the market in that area does not support high end homes and if they bank had to foreclose they would not be able to find another buyer. When shopping for your dream home, look for neighborhoods that support the quality of home you are looking at.
Interest rates are still low and now is a fantastic time to buy your dream home. Home prices typically rise in the spring, making winter a good time to negotiate on sales price. Contact your jumbo mortgage banker today to discuss jumbo home loans and find out how much you qualify for.
