Jumbo loans and non conforming loans
If you need to borrow more than the national conforming limits, you need a jumbo loans. In 2020, the national conforming limits are $510,400 in most areas and $765,600 in high cost areas. If you want to buy a more expensive house, you’ll need a jumbo loan, as no government agency backs loans higher than the conforming limit.
Check to see if you qualify first
If you’re shopping for a home loan, check to see if you qualify first then compare your loan options.
How Jumbo Loans Work
The jumbo loan process is the same as any other loan. The difference is up to each lender, as each one has his/her own guidelines unlike Fannie Mae, FHA, or VA loans that have government guidelines.
You’ll find jumbo loans with fixed and adjustable rates as well as a variety of terms. Many jumbo loans have stricter qualifying requirements, especially in the face of the pandemic right now. Lenders must know that you qualify for the loan and can afford it.
Jumbo Loan Requirements
Because you may borrow as much as $3,000,000 (or more in certain cases), assuming you qualify, jumbo loan requirements look stricter than other loans. The requirements include:
- Typically, at least 15% down or more
- Max 45% debt-to-income ratio
- Credit score of 700 or higher
Jumbo Loan Credit Score Requirements
You need great credit to qualify for a jumbo loan with preferred credit score of 760+ for optimal pricing. Lenders take a big risk loaning you the money, as they don’t have any government guarantee backing them.
A 700 credit score is on the higher end. You must make sure you:
- Pay your bills on time
- Don’t use more than 30% of your available revolving credit at one time
- Don’t have any recent negative credit events, such as collections, bankruptcy, or foreclosure
Jumbo Loan Maximum Debt Ratios
Like your credit score, your debt ratio is important. Lenders use this to determine how well you can afford to pay your bills. If you overextend yourself, you must choose between paying your mortgage and your other bills. Lenders don’t want to put themselves at risk.
Jumbo loan lenders focus on your total debt ratio. They compare your total monthly debts to your gross monthly income, or your income before taxes. You need a maximum DTI of 45%. This means that all the following debts can’t take up more than 45% of your gross income:
- Mortgage (principal, interest, real estate taxes, homeowner’s insurance)
- Credit card minimum required payments
- Car payments
- Student loans
- Installment loans
- Personal loans
- Any alimony payments
- Any child support payments
Your total debt ratio doesn’t include groceries, utilities, cable, or cell phone payments – only debts that show up on your credit report.
Jumbo Loan Down Payment Requirements
Normally, jumbo loans require a 15% down payment or more. On a $1,000,000 purchase price, that’s $150,000. However, these requirements changes frequently depending on the market liquidity and demand.
Just like FHA or Conventional loans you must prove the funds are yours and not a loan. Lenders will look at your bank statements from the last few months to see if your funds are seasoned. Lenders look for large deposits you made within the last few months that could indicate a new loan. If you borrowed the funds for the down payment, you won’t qualify.
Jumbo Loan Employment and Income Qualifications
Jumbo lenders need to know that your employment and income are stable. Typically, they look for a 2-year job history. If you changed jobs recently, though, you may still qualify.
Lenders need to know that you have the qualifications to succeed at your job. If you changed jobs recently but stayed in the same industry, you will likely qualify. If you changed industries, though, you must prove that you have the education and/or training necessary to succeed.
Jumbo Loan Limits
Jumbo lenders offer loan amounts much higher than conventional or government-backed loans. Right now, you may borrow up to $3,000,000 (or more in certain cases), assuming your credit score and debt-to-income ratio qualify you for a loan of that size.
Non-Conforming Loans
Another form of jumbo loans is non-conforming loans. Since these loans take so many different faces depending on the lender, there aren’t ‘regulated guidelines’ to share. If you have a ‘unique circumstance’ that prevents you from getting a conforming or even government-backed loan, you may be a good candidate for a non-conforming loan.
A few good examples include:
- You’re self-employed but your tax returns show a loss. You can prove your income with your bank statements, but conforming and government-backed loan lenders don’t allow it. You need a non-conforming loan.
- You have irregular income with expenses that makes you look like you make less than you do. You can prove your income/affordability with bank statements.
Since there are too many different non conforming loan programs available from all different lenders, it’s impossible to list them all here.
Please get in touch with us if you’d like to learn more.
Jumbo Loan Document Requirements
To prove that you can afford the jumbo loan, you must provide:
- Paystubs for the last 30 days
- W-2s from the last 2 years
- Tax returns from the last 2 years (if applicable)
- Bank statements from the last 2 months
- Proof of your identity
- Purchase contract executed by all parties (purchase transaction only)
- Current mortgage statement (refinance only)
- Proof of homeowner’s insurance (refinance only)
- Most recent HOA statement/payment coupon (refinance only)
If you need a jumbo loan, start getting your qualifications together early.
You need great credit, decent debt ratios and stable employment. Since loans of this size are much riskier, you must prove your worthiness to a greater degree. Lenders need to know that you aren’t going to default on the loan as that would be a large loss for the bank.
Jumbo and non-conforming loans still provide competitive interest rates and great loan programs that enable anyone to get a loan, even if they don’t meet the standard conforming, FHA, VA, or USDA guidelines.
Let us help you with your jumbo or non-conforming loans today!
