Jumbo Mortgage Requirements
- A jumbo mortgage has some very strict requirements.house image by Michael Shake from Fotolia.com
A jumbo mortgage is a loan that exceeds $417,000. The high amount of the loan forces many lenders to decrease risk by enforcing strict qualifying requirements. Borrowers with stronger credit and lower debt-to-income ratios can assure a lender's investment will not be a loss. The application process for a jumbo mortgage is very detailed and requires proper documentation. - Creditors will look at the current debt-to-income ratio when reviewing an application. This represents the amount of debt as a percentage of total income an applicant can have to qualify for a jumbo loan.
Debt-to-income ratio should not be over 45 percent. As example, if a person earns a total of $10,000 per month, monthly debt payments, including mortgage cannot exceed $4,500 per month. - The lender will also take into consideration the loan-to-value ratio. This is the percentage of loan taken out compared to the actual value of the property. The loan-to-value should not exceed 90 percent. As an example on a house valued at $525,000, the loan-to-value at 90 percent means a loan cannot exceed $472,500.
- The required income depends upon the amount of the loan. Proof of income is required whether employed or self-employed. The debt-to-income ratio becomes important at this point. As previously stated the debt-to-income ratio should not be over 45 percent.
For a house that is valued at $525,000 with 20 percent down, the loan value is $420,000 with monthly payments of roughly $4,200 per month. With no other debt, the monthly income must be $9333. If there are other monthly debt payments like car payments and credit cards, monthly income must be higher. - A credit score of 720 or higher is needed to get a good rate on a jumbo loan. A credit score a little lower than this, 660 to 720, can still qualify for a jumbo loan, however the interest rate may be higher.
- Remembering the 90 percent loan-to-value ratio, in order to qualify for a jumbo loan of $417,000--the value of the property must be at least $463,333. If the loan falls below $417,000, it is not considered a jumbo loan and qualifies under standard loan calculations.
- According to Bank Rate, as of July 2010, the average interest rates for jumbo loans vary from 5.5 percent to 6.5 percent. Rates are calculated as a matter of credit score, loan-to-value ratio of the property, overall property worth, credit worthiness and income to debt ratios.
- Many jumbo mortgage lenders require a minimum of 20 percent down payment. Some will be willing to accept a 10 percent down payment but only at the expense of a higher interest rate. In a refinance, equity over and above the loan-to-value ratio must be within these guidelines as well.
For instance if purchasing house valued at $850,000 in July 2010's real estate market, the buyer must come up with a down payment of $170,000 at 20 percent. If he is refinancing an existing loan, he must have equity of $85,000 or more in the home at a loan-to-value ratio of 90 percent.
