Jumbo loans are mortgages financed on real estate that are too expensive for a conventional loan. A jumbo loan is a loan that currently starts with an interest rate of around 3.2% and in terms of 15-years or more.
Also known as non-compliant conventional mortgages, jumbo loans are considered risky because they are not guaranteed by Fannie and Freddie, which means that the lender is not protected from losses in the event of a borrower defaulting. The maximum amount of a conforming loan in Los Angeles County is $765,600; homes that exceed that credit limit will need a jumbo loan.
How to Qualify For a jumbo loan
Jumbo loans come in a variety of forms and are typically available at fixed or adjustable interest rates. Criteria for a jumbo loan can be strict as the loan amount is larger and riskier for the lender. Lenders can require a FICO score that is at least 700, sometimes 720, to qualify.
To ensure that the borrower is not overleveraged, lenders take into account the leverage ratio to ensure that they have the right level of debt to income (DTI) ratio and may also be more flexible if they have sufficient cash reserves. However, some lenders have a stricter 45% cap, and some limit DTIs to 50% of the borrower’s annual income.
It is not uncommon for lenders to require borrowers with jumbo loans to prove they have enough cash to make mortgage payments for the first year. There is no guarantee that you have enough money in your bank account to pay for everything, and there is no guarantee that you have enough money at the end of the loan. To qualify for the Jumbos credit, you will need extensive documentation to prove your financial health. Be ready to present your full tax returns, W’2 and 1099s, and a bank statement when applying.
Have a second property? A lender may require a valuation of the second home for the property you wish to buy. One of the most critical factors for the conformity of a loan is the amount of your loan. See our approval portal for more information on complying with the Federal Reserve Bank of Los Angeles requirements for jumbo loans.
Jumbo Loans vs. Conforming Loans
Depending on your lender’s financial situation, jumbo mortgage rates can be slightly higher than those charged on conforming loans. Some lenders can require a down payment of up to 20%, and others may go as low as 10%. However, many lenders can offer jumbo loan rates that rival those of a standard loan, so you should be wary.
Although low-interest mortgages are relatively common, some jumbo loans require a lower repayment than a standard mortgage loan. Typically at the same amount or even less than what is charged for a conforming loan. You may also be offered a slightly lower interest rate depending on the market situation in some cases. Make sure to consider all aspects before deciding.
Is a Jumbo Loan Right For You?
If your jumbo loan is large and the property market is much more expensive than others, expect higher costs because there are extra qualifications. Assuming you’ve considered your financial situation and feel you can make these higher payments, a jumbo loan can be the perfect fit. If you’re ready to get started, learn, and learn about your options, contact us here.