When buying your dream home, there are various considerations you need to start with before you can even think about settling down in a pricier neighborhood. One of the first deciding factors that will influence your home buying experience is finding the best mortgage that suits your needs, especially when you consider how house prices continue to skyrocket in the USA.
If you find a gem in the real estate housing market, you may find that regular mortgages often fall short. That’s where jumbo loans come into play, which is the best alternative for financing properties with a too steep of a price for a conventional conforming loan.
What is a Jumbo Loan?
A jumbo loan is a go-to choice for investors or homebuyers that need to pay off a mortgage exceeding the set conforming loan limits by the Federal Housing Finance Agency (FHFA). The maximum conforming loan in 2020 generally falls at a whopping $510,400 for one-unit homes, though keep in mind that the price likely varies depending on the location.
It’s the ideal option for families looking to move into luxury homes in a saturated high-end, real estate market. It should cover your mortgage on your primary residence, investment property, or vacation home, but qualifying for one can be challenging.
Understanding the Risks of a Jumbo Mortgage
Seeing as a jumbo loan covers for properties that have prices spiking up beyond the conventional conforming loan, it makes sense to implement stricter guidelines to even the playing field for lenders.
Not to mention, jumbo loans have no back up from leading government-sponsored enterprises like Fannie Mae or Freddie Mac. This makes it significantly riskier for lenders since they have no protection from losses in case they run into complications with the borrower.
What are the Qualifications for Jumbo Loans?
The requirements you need to qualify for jumbo loans vary depending on the lender, but most are based on the following criteria:
- High Credit Score. Seeing as jumbo loans are dedicated to high-paying borrowers that need hundreds of thousands of dollars, it’s no surprise that lenders need to confirm you’re financially capable and responsible. That means you need to have a high credit score of at least 700 to get a nod for a jumbo loan.
- Larger Down Payment. Other loans only require you to make a down payment of 10% or less, but the percentage spikes up to 20% upfront for jumbo loans if you don’t want to cover for private mortgage insurance (PMI).
- Lower Debt-to-Income Ratio. This refers to the debt you pay off divided by your gross monthly income, wherein you will need a ratio of 40% for jumbo loans. A lower debt-to-income ratio describes someone whose debts are more economical than your earnings, which means you can afford high-stake payments in a jumbo loan.
The Bottom Line: Jumbo Mortgages Offers an Opportunity for First-Time Home Buyers
Jumbo loans offer home buyers an opportunity to finance their dream home, but it comes with its risks and higher standard for its qualifications.
When other loans fall short, and you’re looking for the best alternative, we’re your best option. Our expert lenders in Arizona can help you with your jumbo mortgages so that you can have enough financial coverage. Call (623) 432-1309 to speak with one of our loan officers today!