Qualifying for a jumbo loan today isn’t nearly as hard as it was several years ago. Prior to the housing crisis, you could get this type of loan with almost no verification. Lenders were happy to hand out no-income or asset verification loans for large loan amounts.
Then the housing crisis happened and the end of the jumbo loans occurred. Lenders were too scared to offer any type of ‘risky’ loan. They kept loan amounts small and terms short. Now that the housing crisis has passed and home values have increased, more lenders are offering these loan programs.
The good news is you can get them without feeling as if they are impossible to qualify for. Keep reading to see what you’ll need to qualify.
Good credit is important, but you might even need great credit depending on the lender. Your credit score is an indication of how financially responsible you are on a regular basis. If you need a big loan, you’re going to need a high credit score. Just how high does it have to be? It depends on the lender. Some lenders will not accept anything below 700, yet others will go slightly lower.
If your credit score is below 700, be prepared to shop around. There are lenders out there, but they are fewer and further between. That’s okay though, it just means you’ll have a little more legwork to do, but eventually you will find a willing lender.
Money in the Bank
You’ll need money in the bank for several reasons. First, you’ll need a sizeable down payment. Just how much you need depends on the lender, yet again. Some lenders won’t loan out a jumbo loan unless there is a 20% down payment. That’s the magic number the mortgage industry has come up with that everyone agrees reduces the riskiness of the loan. Having your own money make up 20% of the home’s price makes you more motivated to make your payments on time.
However, the down payment isn’t the only thing you need money in the bank for a jumbo loan. Many lenders will also require you to have reserves. In other words, you need money in a liquid account to cover your mortgage payment. They calculate your reserves based on the number of mortgage payments you can cover with the money you have saved.
For example, if your mortgage payment is $2,000 per month and you have $10,000 saved, you have 5 months of reserves. Generally, lenders require between 6 and 12 months of reserves on hand in order to qualify though.
In the past, a no-income, no-asset verification loan was the real deal. Lenders would base your ability to secure the loan on your credit score. Today, that’s not the case. Every aspect of your loan must be verified, especially your income and assets.
You can verify your income in several ways. The most common is with paystubs and W-2s. But, if you don’t work for someone and rather work for yourself, you’ll need to provide the last two years’ worth of tax returns. This includes all schedules so lenders can see what you write off in order to determine your qualifying income.
In some cases, you may be able to get an alternative documentation loan. This applies to borrowers that cannot provide paystubs/W-2s and/or tax returns. This happens when borrowers claim too much on their taxes if they are self-employed or have an alternate source of income. In this case, you can provide 12 months of your bank statements. This shows lenders a year’s worth of income as long as you receive the income consistently.
One of the most important things you’ll need when shopping for a jumbo loan is patience. It may take some time to find a willing lender whether you have a slightly low credit score or you don’t have a high enough down payment.
Remember that each lender’s requirements are different. Some will be more lenient than others. The best thing you can do is maximize your financial profile ahead of time. If you know you have a negative factor, such as a lower than 700 credit score, come up with some compensating factors. These help strengthen your financial profile and give lenders a reason to give you a loan.
A jumbo loan isn’t the hardest loan to get today, but it may take a little time and creativity. Try making yourself look as financially attractive as possible before applying. This will help lenders want to lend you the money you need to buy your dream home.