If the amount of your mortgage loan exceeds $424,100 ($625,500 in highly competitive real estate markets), it will be classified as a jumbo loan and subjected to stricter approval and underwriting requirements. This is because these loans exceed the maximum limit for loans that you may purchase from lenders, requiring banks to take all the risk of financing them. If you find you're getting approved for a jumbo loan, here are three things that may help.
Put More Money Down
One of the main differences between jumbo and conventional loans is that you'll typically be required to put more money down. For instance, banks will typically want you to pay 30 percent of the home's purchase price in cash, while you can get away with only paying 20 percent or less (3.5 percent with FHA loans) on a conventional loan.
However, sometimes even 30 percent isn't enough, especially if your credit is shaky. Thus, you may want to put down as much money as necessary to reduce it enough to qualify for conventional financing. For instance, 30 percent of a $650,000 loan is $195,000, which leaves $455,000 left to be financed. Since it's over the limit, it would still be classified as a jumbo loan. However, by paying $31,000 more, the loan amount drops to $424,000 and becomes eligible for conventional lending.
Coming up with an extra 30, 40, or 50 thousand dollars can seem like a tough task, but there are a number of down payment assistance programs that may help, especially if you're a first-time buyer. Another strategy is to see if the seller will reduce the sale price and to pay as many fees in cash as possible to prevent them from being added onto the mortgage loan.
Get a Cosigner
The credit requirements for a jumbo loan are also a lot tougher. You can get approved for a conventional loan with a credit score as low as 580. However, your score must be in the 700s to get approved for a jumbo loan. As mentioned previously, jumbo loans represent an increased risk for the bank, so the company wants to make sure you are someone who pays the bills on time and won't default, and a high credit score is typically an indicator of that.
Thus, you should pull your FICO credit score to see where you're at and work on raising it if it's not where it needs to be. If improving your score will take too much time, the other option is to get someone to cosign the loan with you who does have a high score. In fact, even adding someone with an average score may help you get approved, since the bank will have a second person to hold liable for the loan balance if you default.
Keep in mind that you can always refinance the loan at a later date and remove the other person's name from the loan documents once you've paid the balance down low enough to qualify for a conventional mortgage.
Split the Financing
A third option for getting around jumbo loan requirements is to split the financing between two lenders. Although it may be challenging finding a lender willing to finance a second mortgage on the home before you take ownership, it's not impossible to do. One way you can go about is to get the seller to finance part of the purchase price. Another option is to leverage other assets (e.g. retirement funds, equity in another home) to buy the house then get a second mortgage afterwards to pay yourself back.
For more information about qualifying for a jumbo loan or help getting approved, contact an online mortgage company.