Jumbo loans are available and often used when the home being purchased is over the limit of conventional loans. This amount can vary by location, so potential buyers will want to check to see if a jumbo loan may be necessary for a home they’re interested in purchasing. If they do need a jumbo loan, there are a few things they’ll want to consider before making a decision.
Down Payment Required
When getting a Jumbo Loan, buyers will often need to have a higher down payment to use. The down payment can be as low as 10%, but for some jumbo loans, the down payment can be 20% or higher. It is crucial to see what the down payment may be to ensure there is enough cash on hand to cover that payment as well as any closing costs or other expenses when the home is purchased.
Higher Credit Score Needed
Buyers should be aware that a higher credit score is often needed for those who want a jumbo loan. In most cases, the credit score must be at least 700 to be approved, but some lenders will require credit scores of 760 to qualify. Buyers will want to improve their credit score if it isn’t high enough, as a higher credit score is going to increase their chances for approval.
Debt-to-Income Ratio
It is important for potential buyers to have a lower debt-to-income ratio to ensure they are not going to be using too much of their income on the house purchase. The exact percentage for this ratio can vary from lender to lender, but it is recommended to try to get it as low as possible before applying, since a lower debt-to-income ratio increases the potential for the buyer to be approved.
Cash Reserves
Many lenders will require buyers to have a significant cash reserve before approving them for the jumbo loan. In most cases, lenders want to see a cash reserve that can cover at least a year’s worth of mortgage payments, as this can help to ensure the loan will still be repaid in case anything happens to the buyer. Lenders will request financial documents during the application process and will look for the cash reserve to make sure it’s available before approving the buyer.
Additional Appraisals
When a home is purchased, an appraisal is done to determine the value of the home. With a jumbo loan, one appraisal may not be enough. The lender may want to do their own appraisal to make sure the home is worth the price that will be paid and to ensure they are not loaning too much money compared to the home’s value. It is important to be prepared for the second appraisal and how it can impact the potential for the buyer to get a loan.
If you’re planning on purchasing a home and it may be more expensive than what a conventional loan will cover, a jumbo loan may be needed. Make sure you consider all of the information here to determine if this is the right option for you or if there are other options that may need to be considered. If you do decide to use a jumbo loan, make sure everything is ready so you have a higher chance of approval.
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