In most areas, conventional loans are limited to just over $400.000. Of course in certain, more expensive, residential areas, those amounts may be higher, sometimes even up to around $700,000. But what if the home of your dreams is currently selling for well over what a conventional loan in your area will offer?
The answer is that you need a jumbo loan. Of course the next question is do you qualify for one? According to bankrate.com, there are three main qualification areas that will answer that question.
Qualification #1: Can you afford at least 20% down payment on the home? Just a few years ago this requirement was only 5% in some cases, but things have changed. A credit squeeze that started in late 2007 frightened some lenders away from jumbo loans entirely. Now they are back, but they are looking for clients that can put a substantial amount down to lessen their risk.
Qualification #2: You must be able to fully document your income. They want cold, hard proof that your annual income is exactly what you say it is.
Qualification #3: If you get the loan, will the monthly mortgage payments be less than 38% of your monthly income before taxes? If yes, then you should be in good standing. Of course the smaller percentage of your income that will be needed for the mortgage the better.
If you think about it, all of these qualifications make sense. No lender wants to lend money that they don’t fully expect to get back–with interest. Meeting these three requirements goes a long way in helping a lender feel comfortable with agreeing to your jumbo loan.
One note, though, is that you shouldn’t expect to get a fixed rate loan for these higher-end amounts. Adjustable-rate loans are common for this market. The good news is that the interest rate can be relatively low for these loans.
Need more information? Please contact us and we will answer any questions you may have about your loan options.
The Federal Housing Administration provides mortgage insurance on loans granted by FHA-approved lenders. A FHA mortgage insurance policy gives lenders protection against losses that result from homeowner default. The benefits of this type of loan are:
Lower Down Payment: FHA loans require a low down payment. You can deposit as little as 3.5 percent. A bonus is this allows you to start building equity sooner.
Lower Mortgage Insurance: The insurance fee is lower than the fee you would pay on a conventional mortgage. The overall monthly payment is also lower.
Better Interest Rate: FHA offers the same low-interest rate to all borrowers. If you qualify for a loan, you get the current rate and the guidelines do not require a minimum credit score.
Higher Seller Contribution: This type of loan has a higher allowable seller contribution and you can negotiate to have the seller pay most of the closing costs.
The FHA approval process involves the following 5 steps:
- Pre-approval during which the lender reviews your financial circumstances.
- A standard Loan Application also known as a Uniform Residential Loan Application. You must give them information about the type of loan you want and the property address.
- A property Appraisal which involves having a licensed home appraiser determine the true market value of the property based on sales prices and the condition and unique features of the property.
- An underwriting and documentation review that involves an analysis of your income, paperwork, and credit score.
- FHA loan approval if the underwriter is satisfied you meet all of the lender’s guides and FHA guidelines.
A mortgage group can help you find the best possible home loan at the lowest interest rate available. For more information please contact us.