A jumbo mortgage may be right for your family if you want to finance a home that falls outside the conventional loan limits. Jumbo mortgages are designed to finance high-value homes and come with stricter requirements than other loan types. While you may need a larger down payment and higher credit score to qualify, a jumbo mortgage can help you acquire your dream house.
Jumbo mortgages are attractive because the Federal Housing Finance Agency (FHFA) sets loan limits for mortgages. If you are looking to buy a high-value home, you may need to take out multiple mortgages to cover the full cost of the home if the amount requested exceeds the FHFA loan limits.
Step-by-Step Qualifications
Jumbo mortgage lenders require borrowers to have a strong credit score and a low debt-to-income ratio to pay the loan financial straits. Let’s look at each one more closely:
- Step #1: To qualify for a jumbo mortgage, you must have a high credit score. A high credit score helps to demonstrate financial responsibility and increases lender confidence.
However, you may not qualify for a jumbo mortgage if you have any negative balances on your reports, such as missed or late payments, foreclosures, or bankruptcy.
These items can stay on your credit report for 7-10 years, so it’s best to wait until they fall off before applying. Even with a good credit score, foreclosure or bankruptcy can lead to rejection.
- Step #2: Lenders will look at your debt-to-income (DTI) ratio when considering you for a loan. This is the amount of debt you have compared to your gross monthly income. Lenders may be concerned that you won’t make your mortgage payments during financial hardship if your debt is a high percentage of your monthly income.
If your credit score is not high, having a low debt-to-income ratio may help to offset this. In addition, if you have a high debt-to-income ratio, having high cash reserves or an exceptional credit score may help to offset this.
- Step #3: Speaking of cash reserves, when considering a mortgage, you should make sure you have enough saved to cover not only the down payment but also the costs of closing the loan and any payments you’ll need to make for at least six to twelve months. This will help ensure you can keep up with your payments and avoid defaulting on the loan.
When lenders consider your jumbo mortgage application, they’ll look at how much money you have in the bank in the form of cash reserves. They may require that you have enough cash reserves to cover your mortgage payments for a certain period, depending on the loan size or if your DTI is lower than average. Thus, lenders will want to see that you have enough cash to cover the closing costs and the mortgage payments for at least six months to a year.
Qualify For a Jumbo Mortgage Today With Mortgage City
Need to borrow more than what a conventional conforming loan offers for a home in Royal Oak, Ann Arbor, or elsewhere in Michigan? Get a jumbo mortgage from Mortgage City! We’re a licensed mortgage originator that provides loans that are flexible, affordable, and according to your needs. Schedule time with a loan officer at (248) 930-8709 and our team will guide you through the process.
