Most people who purchase a home meet the limits set forth by Fannie Mae and Freddie Mac. These two institutions are government-sponsored and work to guarantee mortgage loans up to a certain amount. Typically, the threshold is slightly more than $453,000, although it could jump to as high as $679,650 in areas with a high cost of living.
What happens if you are looking to purchase a home that does not conform to these limits? In that case, you’ll want to consider jumbo loans. The government does not back these mortgages. But, they tend to be significantly larger than loans from Fannie Mae and Freddie Mac. Below, you’ll find everything you need to know about qualifying for a jumbo mortgage in the Sacramento area.
What Is A Jumbo Loan?
Lenders consider a jumbo loan to be anything that exceeds the Fannie Mae and Freddie Mac conforming limits. If prospective homeowners are looking to purchase a home in an expensive real estate market, they may have no choice but to consider a jumbo loan. The figures are determined by the amount in which homeowners would need to borrow.
Say, for instance, a buyer would like to pay a *20 percent down payment on a million dollar home. After the down payment, they would need to secure an $800,000 mortgage to help fund the remaining value of the home. $800,000 far exceeds the conforming limits set forth by Fannie and Freddie. This homebuyer would need to consider a jumbo mortgage.
Primary Requirements To Qualify For A Jumbo Mortgage
If you’re looking to purchase a home that exceeds the government-backed conforming limits, you’ll need to have an exceptional credit score. The minimum credit score required to secure a jumbo loan is 680. However, lenders can also set their own requirements. Many choose to do so and mandate a score of at least 720. While some mortgage programs will take into account your entire credit history, this is not always the case with jumbo mortgages.
Additionally, homeowners looking to secure a jumbo loan will need to put forth a *20 percent down payment. With other loans, lenders may allow you to make a down payment as low as ten percent. So, if you’re looking to secure a jumbo loan, be sure that you have enough cash on hand to do so.
Secondary Qualification Requirements
Jumbo loan lenders may also ask to look into your financials. When doing so, one of the things that they will want to see if proof of income. Lenders will crunch the numbers to ensure that you have enough income to support the substantial monthly payments on your jumbo loan. Additionally, lenders will also want to look at your savings to ensure that you have enough liquid reserves to pay for the home should your income cease.
Lastly, your lender will need to analyze your debt-to-income ratio. This figure weighs how much debt you have compared to how much you make. Standard mortgages allow for a debt-to-income ratio of 45 percent. However, the limit for jumbo loans is 38 percent.
Example: Jumbo 30 Year Fixed: Loan amount $500,000, 20% down, monthly payment without taxes and insurance $2,459.70, APR 4.360%