If you are looking to purchase a home that exceeds the conforming loan limits set by the Federal Housing Finance Agency each year, jumbo mortgages may be necessary. These mortgages are backed by Fannie Mae and Freddie Mac – two government-sponsored enterprises that sell their loans in public markets and make money off them.
Jumbo loans require more stringent underwriting criteria than their conventional mortgage counterparts, however. Jumbo loans tend to be larger and riskier for lenders, so their approval process can take more time.
Credit scores, debt-to-income ratios and cash reserves are key criteria for jumbo loan approval. Generally speaking, the applicant’s debt-to-income ratio should be as low as possible.
A debt-to-income ratio (DTI) is the amount of your monthly income that must be used to pay off recurring debt obligations such as mortgage, student loan and credit card payments. Your lender will calculate this ratio by taking the total amount owed plus dividing it by your gross monthly income.
Debt-to-income ratios are a tool lenders use to assess how well you manage your finances and whether or not you’re overly indebted. They also allow them to verify if you’ve taken steps to pay off bills on time, thus preventing debt accumulation.
To protect yourself from becoming overextended, jumbo loan lenders require proof of several months or years worth of solid cash reserves to cover mortgage payments in case an unexpected financial emergency occurs. While this requirement varies between lenders, being prepared is key.
Other criteria for jumbo loan approval include having a high credit score and consistent employment. Lenders sometimes require minimum income of $50,000 or even $100,000 as security to guarantee you can make your monthly payments.
Your debt-to-income ratio (DTI) will determine the maximum mortgage amount you qualify for and interest rate on a jumbo loan. Depending on your lender, you may be able to lower your DTI while still receiving an attractive interest rate.
Jumbo loans can be more challenging to locate than conventional mortgages, so it’s wise to shop around for the best rate tailored for your situation. A mortgage calculator is an invaluable tool in estimating your payment and how much interest you’ll end up paying in total.
No matter your financial situation, it’s always wise to consult a mortgage expert for guidance. They can give you an accurate understanding of what needs to be done in order to qualify for your mortgage and make the process as seamless and affordable as possible. Furthermore, an experienced advisor may recommend suitable jumbo mortgage lenders tailored specifically towards your requirements.