Are you interested in buying a luxury home that is in a higher price range? Housing prices have increased steadily around the United States since the pandemic, and perhaps you may need to use a jumbo loan to help purchase your ideal home. A jumbo loan is designed to finance a property that is considered too expensive for a traditional conforming loan. If you are interested in a home with a higher price tag in San Luis Obispo, California, Mike Poyntz – Motif Mortgage can help. Read on to learn more about financing a home with a jumbo loan.
Jumbo Loan: Basic Information
Jumbo loans are a type of non-conforming loan, meaning that they are too expensive to be classified as a traditional conforming loan. Government-sponsored entities (GSEs) like Freddie Mac and Fannie Mae buy conforming conventional loans from lenders and then sell them to investors. These GSEs set a maximum loan limit, (which is currently $647,200), and if a loan amount exceeds that limit, it is then considered a non-conforming jumbo loan. Jumbo loans are risky for lenders because they are not backed by GSEs, and a lender is not protected from financial losses if a borrower is unable to pay back the loan. If you want to buy a luxury home, or one that is significantly more expensive than other homes in your area, a jumbo loan could be a good financing option for you. Although interest rates on jumbo loans are high, you may even be able to refinance a jumbo loan after a certain period of time for a better rate. Borrowers are most likely to be eligible for a jumbo loan if they have a high credit score, ample financial resources, and are able to put down a higher down payment.
Jumbo Loan Eligibility Requirements
The underwriting criteria for jumbo loans is very strict for borrowers since jumbo loans do pose more risk to a lender. Some common eligibility requirements for jumbo loans include:
- A minimum down payment amount of 20%
- A low debt-to-income ratio, (DTI). Typically a DTI of 36% or lower is required.
- A credit score of 720 or higher
- You must provide verification that you have the financial resources to afford the cost of higher interest rates and closing costs
- In order to safeguard against missing payments, you may be required to provide proof of liquid assets and savings
- You may need to pay for more than one home appraisal in order to determine the value of a home
Get Help With A Jumbo Loan For Your Home Purchase
Mike Poyntz – Motif Mortgage can help you understand your loan options if you are looking to buy a luxury home, investment property, or a vacation home in San Luis Obispo, California. Contact our office today for a consultation.