A jumbo mortgage refers to a high-priced loan, usually meant for a luxury property. And while this loan may have once been reserved for the millionaire investors of the world, it may not be as exclusive as you think. If you're interested in what it takes to apply, it helps to understand how they work and who the best candidates are.
A Moving Target
To be considered for a jumbo loan, it must be above a certain minimum. However, this amount will differ based on where you purchase your home. The minimum for a jumbo loan in Beverly Hills will be much higher than the minimum in Kansas City due to the discrepancies between median home prices. These values will rise and fall depending on the local economy and average property appraisals, so buyers will need to do a little research into their city's criteria.
Jumbo mortgages are available in a variety of options, similar to a conventional loan. Unsurprisingly, lenders tend to be a little pickier when it comes to who they approve and who they reject. A single application may go through several underwriters to arrive at the final answer. They're looking for exceptionally high credit scores and equally low debt-to-income ratios.
It's the lender who dictates the exact terms of the loan, though historically, jumbo loans have had higher interest rates. However, it should be noted that this is not a hard-and-fast rule. Interest rates have been known to come down based on the caliber of people who apply. The more qualified applicants, the less overall risk the lender assumes.
In addition, the jumbo mortgage minimum down payment has been relaxed to just 5% to allow a more level playing field (especially for people in high-priced markets). Despite this though, most lenders are still looking for at least 15% on a jumbo loan. Shopping around can make it easier to find a lender with reasonable terms for a jumbo loan.
Structuring the Loan
Adjustable-rate jumbo loans are available, but they are not the ideal choice for homeowners unless they know they'll be selling in the very near future. To avoid paying more interest than necessary, experts recommend a fixed-rate over 15 years.
There may be a lot of fine print to a jumbo loan, but lenders are largely ensuring that the homeowner has enough in stable assets (e.g., property, savings, etc.) to cover their mortgage even if they fall on hard times. Knowing the terms can make it easier to prepare, apply, and be approved for the home of your dreams.
When financing a home purchase, one of the most basic decisions to make is where to get your mortgage from. The basic options are whether you should go to a mortgage lender or not. Financing with a mortgage lender has both pros and cons.
Pro: Many Loan Options
If you go to a mortgage lender, you’ll find that they offer a great amount of choices. These are essentially brokers for various underwriting companies, and they offer many loan options. You’ll also have a wide variety of mortgage setups to choose from. Whether you want a 15-, 30- or 40-year fixed or some sort of variable loan, you can likely find it through a lender.
Pro: Might Be Able to Negotiate
The choices that mortgage lenders provide sometimes make it possible to negotiate with potential lenders. If you can pit multiple lenders against each other, you might be able to get a lower interest rate or complimentary points on your loan. A lender might even try to negotiate on your behalf.
Pro: Knowledgeable Guidance
At a mortgage lender, you’ll work with a loan officer whose sole job is to help homeowners find mortgages. They’ll be knowledgeable and able to provide you with informed guidance throughout the loan application and selection process.
Con: Might Not Be Local
Should you shop loans with a mortgage lender, it might not be someone local to your area who’s providing assistance. Often mortgage lenders service people across a state and even maybe in multiple states. As a result, there’s a good chance you won’t ever meet them in person.
Con: Might Sell Your Loan
Ultimately, mortgage lenders are in the business of underwriting and managing mortgages -- and that’s not necessarily the customer service business. If a lender deems it financially prudent to, they’ll sell your loan to another lender. Not only will you not deal with the same person or office, but you might not even deal with the same company down the road. Since mortgages last many years, there’s a chance yours could be sold multiple times.
Finding a Mortgage is a Personal Choice
A mortgage lender may be a good option if you’re looking for a great deal on a home loan, but they don’t offer a personal touch. If you want someone in your area and prioritize personal service, a credit union or other more local institution might be a better alternative for you. The decision to go through a mortgage lender or another place ultimately depends on what type of experience you want.
We all know that buying a home is expensive. For first-time buyers who don’t have the luxury of equity for a down payment, it can be difficult to find a way to finance your home without taking on a huge interest rate and mortgage insurance.
Fortunately, loan programs like those offered by the U.S. Veterans Affairs can be a godsend. However, there is a great deal of confusion around who is eligible for VA loans and how to acquire them.
So, in today’s post, we’re going to cover some of the frequently asked questions of VA loans. That way, you can feel confident in knowing whether or not it’s a good financing option for you and your family.
VA Loans FAQ
Who is eligible for a VA Loan?
VA loans aren’t just for veterans. Most members of the military, including Reserve and National Guard members can apply. Additionally, spouses of service members who died from a service-related disability and those who died on active duty can apply as well.
How long do you have to service to be eligible?
The VA defines eligibility as having served no less than 90 days of service during wartime and 181 days of continuous service during peacetime.
Who are VA Loans offered by?
Like any other loan, VA loans are offered by private lenders. The difference is that VA loans are guaranteed by the government. That means that the federal government takes on some of the risk of lending to you, therefore making it possible to secure a loan with little or no down payment.
Should I make a down payment on a VA loan?
If you have the means, making a down payment will almost certainly save you money in the long run. If you can put down 10% of your total mortgage amount, you can also significantly reduce the VA Funding Fee.
Will I have to pay private mortgage insurance?
Private mortgage insurance (PMI) is something that borrowers pay on top of their mortgage payments and interest. This additional insurance helps borrowers buy a home with a small down payment. VA loans allow you to secure a mortgage without PMI.
Are VA loans different for active duty, National Guard, and Army Reserve members?
Each type of service member is eligible for a VA loan. However, there are some minor differences regarding the VA Funding Fee. With no down payment, an active duty member would pay 2.15% of the loan amount in fees. National Guard and Army Reserve members pay around 2.40% with no down payment.
What does my credit score need to be to get a VA loan?
The VA doesn’t have a set minimum credit score. However, the private lenders that offer the loan do. On average, the lowest credit score that you can secure a VA loan with is around 620. That being said, a higher score will secure you a lower interest rate, saving you money over the lifetime of your loan.
Buying your first home can be stressful enough without worrying about whether or not your mortgage loan pre-approval is going to go through. You may not be prepared for the mountains of paperwork that you'll need to submit before a lender gives you the thumbs' up. That's why it's such a good idea to know the requirements before you narrow down your home search.
Here are the top items your mortgage broker or lender will need in order to pre-approve you for a loan.
1. Proof of Income
W2 employees will need paystubs, IRS 1040 forms, and copies of their W2 form for the last two years.
For self-employed individuals, and small business owners, the burden of proof is higher. In additon to 1099 MISC forms, you may need to submit a letter from your accountant stating that your business is still active and a profit and loss sheet.
2. Asset Information
In addition to the regular taxable income you are bringing in, the lender will want to see proof of other assets, including savings, investment accounts, and written documentation of a family member's intent to gift you money.
These assets will let the lender know if you can afford a down payment, pay for the closing costs on the loan, and have enough cash reserves to afford the transition into homeownership.
3. Employment Verification
Lenders want to know not just that you are employed but also that you are stably employed. Thus, they request a letter from your employer to verify your employment status and the salary you're earning.
Self-employed individuals will need to submit at least two years of their complete 1040 forms in lieu of this verification process.
4. Credit Information
Before they will pre-approve a loan, the lender makes a hard inquiry into your credit. You will need a credit score of at least 620 to qualify for a conventional mortgage loan or a Federal Housing Administration Loan with zero percent down. The government may approve borrowers for an FHA loan with a score between 580 and 620 if they are able to make a sizable down payment.
In order to qualify for the lowest interest rates available — typically the ones you see advertised — you must have a credit score of at least 760. In some cases, it is worthwhile to defer applying for pre-approval until you can raise your credit score. Why? A lower interest rate can save you tens of thousands of dollars over the life of the mortgage.
5. Personal Information
Finally, the lender will want to verify your identity by requesting copies of your driver's license, social security number, and signature.
When dealing with mortgages, people erroneously believe that the smaller the mortgage taken out, the better for them. This article will clarify the reasons why even as daunting as it sounds, the larger and more prolonged the loan, the better.
People who apply for mortgages are those who want to own a house but don't have sufficient cash to buy one or those who need a large sum of money from a lender and use their house as collateral. These borrowers have an extended period to pay it back, and the length of time varies up to 30 years depending on the agreement between the two parties and the size of mortgage money-wise.
If the mortgage borrower is unable to pay after the stipulated time, the property is foreclosed and most probably sold so that the lender, which is usually the bank, is paid back for the loan. For this fear of not being able to pay back, borrowers tend to get smaller mortgages, but below are reasons why getting bigger mortgages may be better in the long run;
1. It gets easier
Over time, payment gets more manageable because the property value appreciates, and the borrower's income rises steadily while monthly mortgage payment remains the same especially if choosing a fixed-rate loan. Thus, as time goes on, the money to be paid gets less daunting and less significant in comparison to the borrower's inevitable financial growth over the years. In the beginning, it may be a struggle to make the payments. But, over time it gets easier.
2. Mortgage accords you the ability to invest more and quicker
Many people prefer long mortgages because that means that the monthly payment will be smaller and spread out over a longer time as opposed to short-term loans. It may be better to invest a more significant amount now to reap more productive rewards in the future as one can use the proceeds from the investment to pay up. This seemingly huge risk only encourages more and faster investments too. In the long run, bigger mortgages result in bigger monthly payments, but it may also result in greater wealth.
3. Mortgage: liquidity and flexibility
It is best not to listen to people who say that all that matters in mortgage loans is paying it off. Or, that it is a risky thing to do. Applying for a small mortgage loan with this mentality will not grant you flexibility. People who get small mortgage loans do not put into consideration all the other necessities toward which the money should go. Hence, one loses liquidity and control over access to one's money. Even though it would most likely appreciate in the long term, you are going to be handicapped in the short-term.
No matter what you decide, it is essential to understand that you must do what works the best for you both long term and short. Discuss with your personal financial consultant and real estate agent.