Have you ever thought of taking out a mortgage? Whether you’re interested in buying commercial or residential real estate, one of the best ways to remain within budget is with a mortgage. With property prices constantly on the rise, a growing number of people are resorting to high-value mortgages like jumbo loans as a means of buying property.
If you’re eager to learn what jumbo loans are and how they work, you’ve come to the right place! Here’s a complete guide to jumbo loans.
What Are Jumbo Loans?
If you’re wondering what jumbo loans are, the answer is in the name! Jumbo loans are high-value home loans worth more than the $647,200limit set by the Federal Housing Finance Agency (FHFA).
Jumbo loans are known as non-conforming mortgage loans because they don’t conform to the mortgage requirements of the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association. Jumbo loans can be worth several million dollars, which is why government-backed enterprises view them as being too risky to insure. If you want to take out a jumbo loan, your best bet is to contact private mortgage lenders.
What Are Jumbo Loans Used For?
Jumbo loans are used to purchase any property that exceeds $647,200 in value—although in some areas the limit can be as high as $970.799.These values represent the maximum limits set by the FHFA on conforming loans. If you want to buy real estate that’s worth less than these conforming amounts, you’re better off taking out a conforming loan as it’s safer and has lower requirements.
Buyers often take out jumbo loans to purchase high-value residential real estate like luxury condos and mansions. It’s also common for people to take out jumbo loans to finance investment properties. Investment properties are typically bought to earn a return on investment. They’re typically rented out so the owner can earn a passive income. Buyers don’t mind taking out jumbo loans to finance investment properties if the income generated by the property is high enough to cover the high monthly premiums on the jumbo loan.
Jumbo loans are also used to finance the purchase of commercial properties like large office spaces that can cost up to $81 per square foot in places like New York. These spaces are rented out to companies willing to pay rent that exceeds the monthly amount owed on the jumbo loan.
What Are the Requirements to Apply for Jumbo Loans?
If you think anyone can walk up to a mortgage lender and take out a jumbo loan, think again! Jumbo loans are among the most high-value mortgages available, which is why they have stringent requirements. There are three main requirements applicants must meet to take out a jumbo loan.
1. Credit Score
One of the biggest requirements to apply for jumbo loans is a high credit score. Mortgage consultants use credit scores to judge the likelihood of a borrower defaulting on their home loan. Therefore, the higher your credit score, the higher the loan amount you’ll be eligible for. Jumbo loans typically require a credit score of at least 700.
2. Down Payment
It’s also vital to put down a large down payment to secure a jumbo loan. This usually amounts to 10 to 30% of the total value of the loan. In other words, if you’re taking out a jumbo loan worth $1 million, you must hand over $100,000 to $300,000 to the mortgage lender to secure the loan.
3. Debt-to-income Ratio
Debt-to-income ratios refer to the percentage of your earnings that go toward paying your debts each month. For example, if you earn $5,000 per month and your debts are $1,000 per month, then a fifth of your income is being used to pay debts each month. In order words, your debt-to-income ratio is 20%.
If you want to qualify for a jumbo loan, your debt-to-income ratio must not exceed 43%. However, the exact number depends on the size of your loan. The more money you want to borrow through a jumbo loan, the lower your debt-to-income ratio must be to prove to the mortgage lender you’re not already burdened with the responsibility of paying other debt.
If you want to get the best deals on jumbo loans, it’s vital to reach out to a licensed mortgage lender like Atlantic Home Capital. They provide an array of mortgage loans at the best available rates and always go the extra mile to earn the respect of their clients. Whether you’re a military veteran looking for VA loans or a freelancer without an income statement seeking no W2 loans, the team of seasoned mortgage experts at Atlantic Home Capital will help you.
About The Author
MasonW. has over twenty years of experience working as a loan officer in numerous cities across the country. He has conducted extensive research into the US mortgage market and his findings helped the federal government navigate the housing crisis of 2008. Mason also serves as a senior advisor to the Federal Home Loan Mortgage Corporation.