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How to Qualify for a Jumbo Loan

Buying a home is an enormous commitment, so make sure you have the financial capacity to make it work. Even though jumbo loans tend to be seen as riskier than conforming mortgages, they can be ideal for high-income earners looking to purchase an expensive property.

How Jumbo Loans Work
Jumbo loans are non-conforming, meaning they do not meet the standards established by Freddie Mac or Fannie Mae and lack government backing. As a result, lenders typically require higher credit scores, low debt-to-income ratios and substantial cash reserves (known as liquid assets) in order to approve them. To protect themselves from potential losses, many lenders require higher credit scores, low debt-to-income ratios and substantial liquid assets before providing these loans.

If you are shopping for a jumbo loan, it is wise to get multiple quotes from different lenders in order to find the most competitive rate. Doing this can save money on interest rates, fees and overall closing costs.

The amount you can borrow depends on the local loan limits in your area. These loan limits are determined by median home prices, so they may increase or decrease over time.

Before beginning your search for a home to buy, be sure to ask your loan officer about these limits. Doing this will enable you to determine if you are within budget and if jumbo loans could help make your dreams come true.

Your Credit Score Needs to be Good in Order to Qualify for a Jumbo Loan

A minimum credit score of 700 or higher is typically necessary in order to be approved for a jumbo loan. You should also have an impressive debt-to-income ratio, usually below 36%, as well as several months extra savings in the bank in case something unexpected comes up and requires extra payments on your loan. With these extra funds in reserve, it will give you peace of mind that payments can be made when needed.

Your Income Must Be Stable and Consistent
Before being approved for a jumbo mortgage, lenders want to know your income level has remained steady over at least two years. This information can be shown through tax returns, W-2s and 1099s as well as information regarding investment accounts or other sources of revenue.

Your Down Payment Needs to Be Generous
Most jumbo mortgage lenders require that you make a down payment of 20% or higher, unless you possess substantial resources at your disposal. However, some lenders may be more accommodating and allow for as little as 10% down on the loan.

If you don’t have enough savings to cover your jumbo mortgage, lenders may require that you purchase private mortgage insurance (PMI). PMI can be expensive, but it will reduce your monthly payments by safeguarding them against potential increases in mortgage rate.

Before making any commitments, it is wise to shop around for the most competitive jumbo loan rate, fee and terms. Doing this can save you money in the long run and maximize your home purchase experience.

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