All About Jumbo Loans
Unless you’ll be paying cash, buying a high-priced home means using a great-big loan. A jumbo loan, to be precise.
It’s known in the industry as a “non-conforming” loan because the loan amounts exceed Freddie Mac’s and Fannie Mae’s conforming loan limits. One of these limits is the loan amount, which, in 2018, is $453,100 for a U.S. single-family home.
FHA’s loan limit, for Yellowstone County at least, is $294,515.
Now, this is what is known as the “baseline limit,” and it doesn’t apply to high-cost areas, such as Hawaii and parts of California.
It does apply here in Billings, however, so if your home purchase price will exceed the limit, you’ll need to apply for a jumbo loan.
How to qualify for a jumbo loan in Billings
Jumbo loan requirements are more stringent than those of the conventional loan and they vary by lender and program.
Let’s take a look at common FHA jumbo loan requirements:
- You must pay a 3.5 percent down payment and closing costs.
- Many lenders want to see at least a 580 FICO score, but larger loan amounts may require a 600 score.
- Your debt-to-income ratio cannot exceed 43 percent.
- You cannot use down payment assistance if the loan amount exceeds $417,000.
- Only traditional credit sources will be considered.
- In a declining market, FHA requires two appraisals if the loan-to-value ration exceeds 95 percent and the loan amount is larger than $417,000. You may also need to pay a 10 percent down payment.
The basic requirements for a conventional jumbo loan are similar to those for a conforming loan. The lender wants to see proof of your assets and that you have used credit wisely. They will also look for a high credit score – at least 720. The average score of a jumbo loan recipient in Q1 2017 was 771.
You’ll also need the following:
- Be able to show a stable and consistent employment history. Lenders want to see at least two years with your current employer or, if you’re self-employed, copies of tax returns for the past two years.
- Proof of income – This includes pay stubs and bank statements.
- Be able to prove you have the funds for the down payment.
There may be additional requirements, depending on the lender.
Jumbo loan expenses
According to Core Logic, in the first quarter of 2017, jumbo loans were less expensive than conforming loans. No, this isn’t always the case, but it is an example that you can sometimes get a good deal on a non-conforming loan. Jumbo loans do tend to have higher closing costs and often take longer to close. Be prepared for closing, however. Because there are additional steps in the qualifying process, jumbo loans tend to carry higher closing costs. An example of an extra step is a lender who may require two appraisals of the property.
Reach out to us if you’re considering a jumbo loan; we’re happy to put you in touch with Billings lenders who can walk you through the process and present all options.