Some borrowers may be located in very competitive markets, or the home they want to purchase is above the conforming loan limit. In these circumstances, a specific type of mortgage loan called a jumbo loan will be required to purchase your dream home.
What is a Jumbo Loan?
Qualifying for a Jumbo Mortgage
These types of loans are far riskier for lenders to give out. For this reason, the requirements that must be met are of a higher standard to provide as much security as possible to the lender.
There is no entity that will guarantee or insure these loans. That means the lender would carry the entire weight of the loss if a borrower ends up defaulting on payments, so they will compensate with stricter mortgage requirements for approval.
Before you start the qualifying process, you will need to get organized and have a lot of documentation ready to share with the loan officer that is handling your application.
If you are looking for jumbo loans in Arizona, then you will need to be prepared to meet these standards to have a chance of qualifying for jumbo loan programs.
Understand Jumbo Loan Limits
Two organizations play a direct role in the real estate market; Fannie Mae and Freddie Mac. Though they are regulated by the federal government (the Federal Housing Finance Agency), they are not a part of it. These entities determine the limits set on conventional loans.
In 2023, the current conforming loan limit is around $726,200 in most markets. Home loans below this limit are considered conforming. Anything above that number is non-conforming, also known as a jumbo loan.
Fannie Mae and Freddie Mac will back (purchase in a secondary mortgage market) residential mortgages beneath these conforming loan limits. Conventional mortgages above the jumbo loan limit are considered riskier and are therefore not backed by these entities.
Lenders usually have more stringent requirements for borrowers looking to qualify for a jumbo loan so the risk level is reduced.
Since this type of conventional loan is considered much riskier to the lender, you will need to cover a pretty sizable down payment. For this, you will need significant cash reserves to make a large down payment. If you cannot afford 20% of the purchase price for down payments, then you will not be approved for jumbo loans.
Strong Credit History
Compared to a conforming mortgage, this loan type requires a much stronger credit score to obtain. A conventional mortgage that is conforming can be acquired with a credit score of 620 or more. Non-conforming loans are likely to require a credit score of at least 700. This tells lenders that you reliably pay back your debts.
Low Debt-to-Income Ratio
How much debt you have compared to your monthly income must be a low ratio to be considered for jumbo loans. While you can acquire a normal mortgage loan with a DTI of 40-50%, a jumbo mortgage loan may require a DTI as low as 36%.
The risk is high for lenders, so they must make sure you are unlikely to default on your mortgage payments.
Lenders want to ensure that you are paying what the property is worth for a jumbo mortgage. Many of them will require multiple property appraisals to ensure that it is a secure investment.
A property appraisal also benefits the borrower because it ensures that they are paying a fair amount for the property. Otherwise, the deal they receive on the mortgage could hurt them financially.
Payments and Loan Amount Total
Interest rates tend to be higher for jumbo mortgages because it reduces the risk to the lender. The two factors that affect these rates the most are your credit score and the current Arizona market. A high score will give you access to more competitive rates. Additionally, you will have to decide between a fixed rate or adjustable rate mortgage.
Most lenders require a minimum 20% down payment on Arizona jumbo loans, the reason being that they are much riskier than their conventional counterparts.
Taking advantage of your cash reserves is critical when acquiring a jumbo home loan, plus it will start you off with more equity in the home to bring you closer to your financial goals and have a shorter loan term.
Talk with District Lending About Jumbo Mortgage Loans
A jumbo loan can be used for properties other than primary residences. That means you could acquire a jumbo loan for investment properties or a vacation home. Once you get above that maximum loan amount set by the market, you have a little more freedom than you would with a conventional mortgage.
We would love to talk about your jumbo loan needs and goals for homeownership in Arizona. Talk to a loan officer today at District Lending by contacting us online or giving our office a call.
We can answer all your questions about loan terms, how to qualify, other types of loans that we offer, and how a jumbo loan could help achieve your property ownership dreams.