jumbo-loans

Jumbo Loans

Sometimes, when an individual dreams, he dreams big. He dreams of having a big house with a big lawn, a pool, its own airport, and maybe even its own golf course. However, that dream is not always easy to reach especially if you do not have a lot of money lying around.

Financially speaking, getting a big house is not easy if you are not able to make a big down payment. This may be a big hole in the universe of banking that needs addressing. This specific needs gave birth to Jumbo Loans.

What are Jumbo Loans?

Jumbo Loans are home loans. The value of jumbo loans are often bigger than the limits set by the Federal Housing Finance Agency (FHFA) on conforming loans. Also known as non-conforming loans, jumbo loans are considered as riskier than the ordinary loans.

Jumbo loans are designed to finance luxury properties and homes. They come with unique tax implications and different underwriting requirements. These kinds of loans are currently popular since the recession and the housing market bubble in 2008.

understanding-how-jumbo-loans-work

How does one qualify for Jumbo Loans?

In order to qualify for a Jumbo Loan, a borrower must comply with any of the following requirements:

  • The credit score should be higher than 700;
  • The debt-to-income ratio should be low and close to a rate of 36%;
  • The individual must have enough cash in the bank; and
  • The borrower must be ready to present extensive documentation such as all of his available W-2s, tax returns, and 1099s.

 

Am I really ready for a Jumbo Loan?

Even if you think you are qualified for a Jumbo Loan, you may not be ready for it. To know that you are ready for a jumbo loan, you must have an income between $250,000 and $500,000 a year. This income segment is considered as the best by financial institutions because they are not yet millionaires who have amassed fortunes and yet they are almost there that they need guidance.

 

What is the difference between jumbo loans and the conforming loans?

Jumbo loans are different from non-conforming loans in many ways.

  • As to down payment: Conforming loans require a down payment that could be less than twenty percent while jumbo loans require a down payment of at least twenty percent. The reason for this requirement is because of the fact that the borrower needs to prove his capacity to pay
  • As to interest rates: Jumbo loans have a higher interest rate than conforming loans. However, recent times have proven that the interest on jumbo loans are now competitive.
  • As to loan limits: Jumbo loans have higher loan limits than conforming loans.

 

Summary

Obtaining a jumbo loan may or may not be the best decision that you can do for yourself. It requires a lot of thinking and a whole lot of financial accounting. Even if you think that you are already able to do so, get the help of a financial adviser or a mortgage professional who can help you along the way. It is easier to ask for help when you do not need it than to ask for help when you are already deep into a decision. Hire a professional today and see why it works to ask for help.

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