Should you apply for a jumbo loan?
Should You Apply for a Jumbo Loan?
Do you have expensive taste? You may not realize that everything you want in a home may be a little out of budget until you have found your dream house. Don’t give up on your dreams right then and there. A traditional home loan usually tops out around $550,000 depending on the area but a jumbo loan is a loan that applies to any amount higher than that. A jumbo loan is an appealing option but here are a few things to consider before taking out a jumbo loan.
Jumbo loans are riskier for the lender, so your mortgage banker will have a lot more stipulations. First, you will need to qualify for a jumbo loan. A jumbo loan will require a great credit score, above the average. Be prepared to have a credit score around or above 720 before applying. Then, the lender will assess your DTI. Your DTI is your debt-to income ratio. A lender will want to make sure you have plentiful cash reserves before you take out the loan. Speaking of cash reserves, lenders may want to see that you can cover at least a year’s worth of mortgage payments. Lastly, you will need to provide ample tax documents and other financial records.
If you meet all the requirements of a jumbo loan, expect some differences between a regular conforming loan to a jumbo loan. A jumbo loan means you will have a substantially larger down payment, higher interest rates and higher closing costs. Since a jumbo loan is riskier for the lender, the mortgage banker will have higher costs associated with the loan. Be prepared to put down at least 20% of the down payment. The bank wants to make sure that you can really afford this home. It is not guaranteed you will have higher interest rates but it is not uncommon either. Depending on your lender you could have higher competitive interest rates. However, the rates change with the market. Lastly, be aware that closing costs will be higher than you ever expected. Since it is a jumbo purchase, expect jumbo fees.
Do you want to know more about jumbo loans specific to your situation? Every person and property is different. Reach out to a reputable mortgage banker like Graystone Mortgage to get into details.