5 Questions to Ask Before You Get a Jumbo Loan
For most of the U.S. any loan that’s over $417,000 (or $625,000 in Alaska and Hawaii) is considered a jumbo loan. Are you ready to borrow that much money? Ask yourself these questions first.
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Do you have a 20 percent down payment? Lending that much money is a big risk for your mortgage company. So, when it comes to jumbo loans, private mortgage insurance (PMI) isn’t an option. Lenders are going to insist that you have at least 20 percent for a down payment. Or that the house you’re selling has enough equity to amount to 20 percent of the house you’re buying.
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Can you afford your mortgage (and can you prove it)? Knowing how much house you can afford is the first thing you need to know before you take on any mortgage. But with a jumbo mortgage, you’re really going to have to prove it. The bank’s going to look very closely at what percentage of your income will go towards your monthly payments, and if you can afford that.
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Are you prepared for an adjustable rate loan (ARM)? Most lenders only offer adjustable-rate, jumbo mortgages. Make sure you ask your lender what the caps are on the loan and decide whether or not you’re prepared to handle the worst-case scenario. And remember, an adjustable-rate mortgage (ARM) can work in your favor if the mortgage rates adjust downward.
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Is that home right for you? There are some areas of the county where you’re just not going to find homes that are less that $417,000. But sometimes there are options. Decide whether it’s worth it to you to move a little outside your desired neighborhood and pay less. Or if there’s a smaller, less expensive house in the same neighborhood.
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How are your credit score and debt-to-income ratio? Anytime you buy a house, you’re going to want to know your credit score and debt-to-income ratio (DTI) . But those numbers are especially important when it comes to jumbo mortgages. You’re probably not going to get approved unless your credit score is at least 700 and your DTI is below 45 percent. If not, take some time to try to improve your finances before you buy!