Jumbo Loans

Jumbo Loans in Maryland, Virginia, & Washington, DC

Most regular mortgage loans are limited. As of 2013, a typical mortgage loan was limited to $417,000 for single family homes, although this does vary from state to state as well as in high-cost areas. If you are looking to purchase a home that will cost more than that limit, then you’ll want to apply for a jumbo loan. Jumbo loans differ from regular mortgage loans in that they allow buyers to take out a loan above the typical mortgage limit to purchase more expensive property.

What You Need to Know About Jumbo Loans

There’s a reason that regular mortgage loans have a limit – it helps to limit the risk that lenders are taking when granting borrowers large mortgage loans. Jumbo loans are considered to be much higher risk for lenders because of their size. The reason for this is simple. If you take out a jumbo loan and are unable to make payments, which in turn results in you defaulting on your loan, then the lender is suddenly out of a much larger sum of money that can be difficult to collect. When a regular loan defaults, lenders typically don’t have much trouble selling the property in order to collect the money that is owed to them. However, jumbo loans are typically granted to borrowers that are purchasing luxury properties. Luxury properties are much more difficult to turn around and sell for full price – and luxury prices are much more vulnerable to the highs and lows of the real estate market to boot.

Jumbo Loan Requirements

Because of the risk involved for lenders when it comes to jumbo loans, they are much more difficult to be approved for. The following are just some of the requirements that you will have to meet in order to be able to take out a jumbo loan:

  • Larger down payments – Most lenders will require a bigger down payment on a jumbo loan. Expect to pay anywhere between 15 and 30 percent of the property’s cost as your down payment.
  • Higher credit score – Due to the inherent risk of granting a larger loan, lenders will require that you have a credit score of at least 700.
  • Lower debt – To help limit the risk that you will default on your loan payments, lenders will require that you have a debt-to-income ratio of 43 percent or less.
  • Reserves – Lenders will want you to have at least 6 to 12 months worth of reserves available to ensure that you can afford the jumbo loan.
  • Two appraisals – Most lenders will also require two separate appraisals on the property instead of just one.

As you can see, it takes a lot more to be approved for a jumbo loan than to be approved for a regular mortgage loan. Before applying for a jumbo loan, keep in mind that along with a higher down payment, you may have to pay higher interest rates as well.

Learn More About Jumbo Loans

For additional information on jumbo loans, contact us at Eagle Creek Mortgage today.