What Homebuyers Need to Know about Jumbo Mortgages

Nearly 90 percent of all mortgages from banks nowadays are backed by two major government-sponsored enterprises: the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Now, how about the remaining 10 percent? Part of that other percentage has a special categorization of loans called “jumbo mortgages”. This is a financing option offered to people who buy expensive properties that cost half a million dollars or more.

What is considered a jumbo mortgage?

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When applying for a loan, the main criterion is the size of the mortgage. In 2015, the cap for conforming loans in most parts of the country is $417,000 for a single-unit property. But over 208 counties in the country are designated as competitive areas where the caps can be as much as $625,500 or higher for a single-unit property. This means that any kind of loan that exceeds the limits are considered a jumbo mortgage. Most banks do not issue jumbo mortgages that are as big as tens of millions of dollars. And since such loan is a non-conforming loan, it is not subject to the two government-sponsored enterprises.

How do you get approved for the jumbo mortgage?

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Firstly, you will need to provide evidence that you have more than enough cash to cover the repayments, which will most likely be very high should you choose the standard 30-year fixed-rate option. Aside from having cash on hand, you’ll also need to prove you have a steady source of income, which means that a lender could be looking into your tax returns for the last two years or more.

Secondly, you have to know that although a jumbo mortgage is a non-conforming loan, it could still fall within the guidelines of what is considered a qualified mortgage by the Consumer Financial Protection Bureau. One of the guidelines stipulate that your monthly debt-to-income ratio should be 43 percent or less.

Thirdly, your credit history must be in excellent standing. Most lenders don’t approve a jumbo mortgage for a borrower with a credit score that is 700 or less.

Lastly, you will need to make a down payment of 20 to 30 percent of the total price of the property.

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