What Is a Jumbo Loan and How Can I Qualify for One?

A jumbo mortgage is a loan used to finance homes in excess of the local conforming loan limits, which are determined by the Federal Housing Finance Agency (FHFA). In most counties, the conforming loan limit is $647,200, and a home that exceeds this amount requires a jumbo mortgage.

If you are looking for a jumbo mortgage, but need more information about this type of loan, continue reading.

What Is a Jumbo Loan?

A jumbo loan is a mortgage loan that exceeds the conforming loan limits. Nationally, the conforming loan limits are set annually by the FHFA. The conforming limit is determined annually on a county-by-county basis.

To find out how much you can borrow, a mortgage lender will look at your income and credit history and determine how much you can afford to pay each month. This is called the “debt-to-income” ratio. If your monthly payments are too high, you may need to consider a jumbo loan.

Typically, a jumbo loan will have a higher interest rate than a conforming loan because it carries a higher risk of default.

Essentials to Qualify for a Jumbo Loan

1. Debt-to-Income Ratio. The lower your monthly income and monthly housing costs, the higher your debt-to-income ratio will be. Even if you’re able to qualify for a conforming loan, you might need to consider a jumbo loan if your debt-to-income ratio is too high. If you don’t qualify for a conforming loan, your lender may be able to suggest a jumbo loan as a cross-over loan. This is a jumbo loan that exceeds the conforming loan limits.
2. Down Payment. In most cases, a jumbo loan requires a large down payment, especially if you are a first-time homebuyer. Most jumbo loans will require a 20% down payment, though some lenders may offer a 10% down payment with a very high credit score.
3. Property Location. When looking for a jumbo loan, it helps to have an idea of housing prices in your area. Because a higher credit score is required  in order to qualify for a jumbo loan, the lender will review your credit history and determine whether you have a good chance of becoming a homeowner.
4. Documentation. In order to secure a jumbo loan, you need to provide the lender with proof that you have enough assets to make the loan payments. A lender will not just look at your salary and income but also your assets and debt. Your assets could include investments, stocks, bonds, and other assets that may be liquidated for cash.

The Bottom Line

Fortunately, you don’t need to be wealthy to get a jumbo loan. You just need a good credit score and strong credit history, the required down payment, and enough assets and income to pay the loan.

If you think you will qualify for a jumbo loan, don’t hesitate to ask your mortgage lender whether you should consider a jumbo loan.

Contact Our Loan Specialist Today!

Should you be looking for a jumbo loan in Louisville, get in touch with our team at American Mortgage Solutions. We have financed home buyers’ and homeowners’ dreams! We are proudly licensed in and serve Kentucky, Florida, Indiana, Colorado, and Tennessee. Call (502) 327-9770 and inquire today!