Considering a Jumbo Loan?
Here’s What You’ll Need to Qualify
Being that jumbo loans are, well, jumbo – they are a bit riskier for lenders to take on. In turn, the borrower will need to provide sufficient documentation to prove they can handle their non-conforming loan.
Is qualifying for a jumbo loan different than qualifying for a conventional mortgage?
Many of the requirements are similar to those of a conventional mortgage. When considering a jumbo loan you’ll still need to dig up two years of tax returns, 30 days of pay stubs, and two months of bank statements. But because jumbo loan amounts exceed the conforming limits set by the FHFA, borrowers fall under slightly different criteria when it comes to factors such as credit score, DTI and cash reserves.
Credit Score – The generally accepted minimum score to qualify for a jumbo loan is 700. Some lenders require a minimum of 720. If, however, your score is hovering around 680 there is no need to panic just yet. Lenders may still be able to work out a jumbo loan for those with lower credit scores. This depends on the size of the loan, down payment, and debt carried.
Debt-to-Income (DTI) – With a larger loan comes a lower DTI requirement. Your debt-to-income ratio is calculated by dividing total monthly debt obligations by gross monthly income. Most lenders are looking for a DTI of 43% or below.
If there were a “magic number” it would be about 35% DTI. But just as with credit scores, a higher DTI does not necessarily signal the end of your jumbo loan search. It does mean you should expect a higher jumbo loan rate than you would with a lower DTI.
Liquid Reserves –Before you start buying all that furniture for your new house, be prepared to show reserves to cover the mortgage payments for a number of months. Depending on qualifications like DTI or the size of the down payment, this number can vary anywhere from six to twelve months.
Those six to twelve months’ worth of mortgage payments do not necessarily need to be in your checking account. There is more than one way to meet the reserve requirement. For example, some lenders will consider 70% of retirement or investment funds to be liquid. This allows for a bigger show of reserves.
How do I measure up?
Credit score, DTI and reserves are three major components which give potential borrowers a good snapshot of how they may qualify. Keep in mind that there are many other aspects which contribute to the final picture. A jumbo loan mortgage calculator can be helpful in gaining an idea as to how your down payment affects potential future DTI. Checking daily jumbo loan rates gives you a baseline on the amount in interest you will pay.
If you’re considering a jumbo loan, consulting a mortgage professional allows you to see how all the pieces of your specific puzzle fit together.