A jumbo loan, also called a jumbo mortgage, is a financing type designed to acquire luxurious properties. It exceeds the limits set by the Federal Housing Finance Agency (FHFA) compared to the traditional mortgages available today.
Qualifying for a jumbo loan requires a high credit score, a 20 percent down payment, income, and asset documentation, and a low debt-to-income ratio below 43 percent. With this in mind, how do people with damaged credit qualify for a jumbo loan?
Apply for Non-Qualified Mortgages
Borrowers with damaged credit will find it more challenging to qualify for jumbo loans. Still, they can apply for non-qualified mortgages, which work similarly, but with less strict qualifications. So, how does a non-qualified mortgage differ from jumbo loans?
What is a Non-Qualified Mortgage?
A non-qualified mortgage is a mortgage that doesn’t meet the guidelines set by the Consumer Financial Protection Bureau (CFPB). Non-qualified mortgages don’t require a borrower to prove their ability to repay the loan.
As a result, non-qualified mortgages have a higher interest rate than jumbo loans since they’re considered higher risk. These mortgages pose a higher interest rate than jumbo loans, and people usually work on their credit score to qualify for jumbo loans with lower interest rates. Still, they’re a viable option for those with damaged credit.
Requirements Used to Qualify for Jumbo Loans
Jumbo loans have stricter requirements than non-qualified mortgages. Financial institutions may request the following: credit score, debt-to-income ratio, cash reserves, documentation, and appraisals. Sometimes, financial institutions also require work documentation.
- Credit Score. Most financial institutions require a minimum credit score of 700, and some require up to 720. If the borrower reaches the required credit score, the financial institution may only accept the application once the borrower builds their score better.
- Debt-to-Income Ratio. The debt-to-income (DTI) ratio compares the borrower’s monthly income and monthly debts. The debt includes mortgage payments, car payments, credit card debts, and other liabilities. Financial institutions require a maximum DTI ratio of 45%.
- Cash Reserves. When securing a mortgage, one of the critical requirements is proving that you have enough cash reserves. Lenders want to see that you have enough money left over after closing to cover any unexpected expenses or financial bumps. Typically, lenders will require that you have two months’ worth of cash reserves in the bank. Of course, the more cash reserves you have, the better. It shows that you’re a responsible borrower and prepared for anything.
- Financial Documentation. Borrowers must provide additional documentation to the lender if they’re self-employed. Along with your tax returns, you’ll need to provide bank statements and profit and loss statements. If you’re a business owner, get in touch with your accountant to help you gather the necessary documentation.
- Appraisals. Borrowers can only get a jumbo mortgage with an appraisal. The appraiser will visit your home and determine its value. You must keep in mind that the appraised home value must be equal to or higher than the amount you’re borrowing. Suppose the property’s value does not meet the requirements set by the financial institutions. In that case, borrowers can appeal for the appraised value, find another lender using a different appraiser or do cash-in refinancing, which involves bringing cash to closing.
Although getting a jumbo mortgage is quite similar to conventional mortgages, there are a few key differences between the two. For one, jumbo mortgage interest rates are higher than traditional mortgage rates.
On the other hand, jumbo mortgages have lower down payment requirements. Those considering taking out a jumbo loan should consider its implications, such as interest rate, loan amount, and the requirements needed.
Get In Touch With Your Michigan Mortgage Expert Today!
Mortgage City is a financing institution that offers jumbo loans to clients needing a hand in purchasing luxurious properties. We’re licensed in Michigan, Florida, New Hampshire, Ohio, Massachusetts, Texas, California, Indiana, and Colorado. We ensure people that we can get the title they want through the mortgages we offer, making the purchasing process more manageable. Contact us today at (248) 930-8709 to get a free jumbo loan rate quote today.