Loans are a part of life. We turn to loan officers or mortgage companies for advice about them, whether you’re someone looking to refinance in Utah an existing loan or a New Yorker inquiring about home mortgages.
The type of loan that you need will depend on your purpose. If you found a house but notice that the conforming options are not enough, you need to get a jumbo mortgage. It is a type of mortgage where the loan amount exceeds the limits set by Fannie Mae and Freddie Mac.
As the amount of money borrowed is larger, it is subject to different requirements. Whenever you apply for a loan, you are presenting yourself as someone responsible and able to pay it back. Here are some things you need to be aware of to be qualified for a jumbo mortgage.
This score is based on your credit report and its calculation based on five categories. Understanding these is key to getting a high score.
- Payment history – This carries the most weight on your credit score at 35% and looks at how punctual you are with your payments.
- Amounts owed – This looks at how much you have borrowed versus your available credit and is weighted at 30%. Do not max out what you are allowed to acquire, or else you may become overextended.
- Length of credit history – At 15%, this looks at the ages of your past and current accounts. A longer history can give out a higher score, but it can be relative to the rest of the credit report.
- New credit – This refers to your recently-opened accounts. Opening too many in quick succession may hurt the score. Limit yourself to having two new accounts per year. It is weighted at 10%.
- Credit mix – The different types of accounts that you have will be considered. This one is also weighted at 10%.
If you need to allow yourself some time to improve on your credit score, do so. A jumbo mortgage requires a minimum FICO score of 700.
Improve your Debt-to-Income Ratio
The formula for debt-to-income or DTI ratio is your monthly payments for debts divided by your gross monthly income. It is an indicator of your ability to pay back your loans. A rate of 43% is the target figure to qualify for a mortgage. Managing your existing debts can help lower your DTI. You can pay off credit cards with the highest interest rates or consult your loan officer about restructuring your current loans.
Lenders will be looking at how much liquid assets you have. You can make do with a month’s worth of expenses when applying for a conforming loan. For a jumbo mortgage, that should be increased to at least three months.
Collect documentation. Gather anything that you think will contribute to proving how well you are doing financially. Also, it would not hurt to do another appraisal of the house or property that you desire. To be on the safe side, be prepared to make a 20% downpayment.
As its name implies, getting a jumbo mortgage will be a massive undertaking. You need to make sure you are prepared and financially able if you will get one. If that is what it takes to get the house of your dreams, go for it.