Ever gone out for a seafood dinner and the “baby” shrimp just didn’t do? Ever ordered an extra-large pizza or glass of tea? We live in a world where bigger is usually considered better. While this may not always be true, it certainly is when it comes to the kind of loan you need to purchase a super-expensive house. It’s therefore appropriate that this kind of loan is known as a “jumbo” loan. But just how big is a jumbo loan and what must you do to qualify for one? Let’s unlock the mystery together.
The Benefits of Jumbo Loans
If you’re shopping for luxury homes, it’s very likely a conventional loan isn’t going to meet your need. This is because conventional loans don’t currently exceed $548,250. Jumbo loans, on the other hand, are available for home purchases north of $548,250 and up to $2,000,000. On top of this, jumbo loans offer the convenience of one loan for the entire amount you need to borrow — instead of several smaller loans. Plus, you can add extra features that include interest-only payments and temporary buy-downs.
For more perks associated with jumbo loans, click here.
Jumbo Loan Requirements
As great as jumbo loans might be, they’re not for everyone. In fact, not everyone is going to be immediately eligible. To qualify, you typically need a credit score of at least around 700. The credit score necessary for most conventional loans, by comparison, is 620. Along with a reasonably high credit score, having a good amount of cash in the bank increases your chances of securing a jumbo loan. A “good amount” of cash, by the way, isn’t just a couple thousand bucks. It’s more like enough money to cover several months’ or a year’s worth of mortgage payments.
One other factor that determines your readiness for a jumbo loan is your debt-to-income ratio, otherwise known as DTI. Quite simply, this is the percentage of your monthly gross income that goes toward paying debts. To find this percentage, take the total of your monthly debt payments and divide by your gross monthly income. The lower your DTI, the more likely you are to get a jumbo loan.
The Good News
Just because you might not currently have the credit score, cash reserves or DTI to secure a jumbo loan doesn’t mean all hope is lost. Here are some ways to lower your DTI. Also, be sure to ask your Fairway of the Carolinas loan officer about our internal Creditool team. The highly qualified credit analysts on this team will assign someone to your credit report and draft a free credit improvement action plan just for you. If you think you’re in good standing, it can’t hurt to fill out the loan application linked below.
Even if you don’t qualify (and you very well might), you’ll receive some valuable feedback about areas where you can improve for next time. If you think you’re not ready to fill out an application, but you’d like to talk with a mortgage adviser, contact us. We’ll connect you with just the right person. Before you know it, you’ll be well on your way to buying the home of your dreams.