When you are financing your new home, a term that may come up in reference to your mortgage is “jumbo home loans.” You may wonder what the term means and if it’s a real loan. The truth is, “jumbo” is the term used by lenders for high risk loans. These are loans that have very high interest rates and require a lot of collateral.
If a lender offers you one of these loans, they are counting on your ability to make payments even when you don’t have the money. Most lenders want borrowers with good credit scores and a low debt-to-income ratio. They make their money based on the risk of the loan. The higher your debt-to-income ratio, the greater the chances of them collecting their loan. The higher your debt-to-income ratio, the lower your credit scores and the lower your interest rates.
So, how do you know if you will qualify for a “jumbo” home loan? It depends on several factors. First, your credit score and your debt-to-income ratio need to be strong. If you have bad credit, then you won’t qualify, but if you have a good credit score and a low debt-to-income ratio, you most likely will qualify.
Another factor that will determine if you qualify for this type of home loan is your down payment. Lenders look at your down payment when determining your loan limits. If you have a low down payment, then you probably won’t qualify for a conventional mortgage. On the other hand, if you have a large down payment, you more than likely will qualify for a conventional loan that has better loan limits.
Because jumbo home loan lenders usually deal with a higher amount of credit risk, they require stricter credit scores and lower debt-to-income ratios. They also usually require a higher down payment. On the flip side, these companies tend to have lower interest rates. When you compare these two factors side-by-side, you will find that you can qualify for a better interest rate and pay down your debt more quickly. This can help you save money over the long run.
Many people think that when applying for a larger home loan that they will have to come up with a larger down payment. However, if you are able to find a fixed-rate mortgage, then you may be able to reduce your overall monthly payment. Some fixed-rate mortgages come with attractive interest rates, but you will not have as large of a payment compared to a variable interest rate. With a fixed-rate mortgage, you are locked in at the interest rate; therefore, it makes it easier to budget your monthly expenses.
Another option when you are looking for a good fixed-rate loan is to look for one with a lower than average tort-to-value ratio. A tort-to-value ratio is determined by dividing the mortgage loan’s markup percentage by the total mortgage value to get the current interest rate. The higher this number is, the higher your mortgage rates will be, and the higher your payments will be.
Your final option would be to use a cash out refinance mortgage loan. Before you decide to go this route, you should always meet with a mortgage loan officer to discuss the best refinance options for your situation. You should also discuss any issues that you are concerned about, such as your credit score or cash flow problems. A qualified mortgage loan officer can help you find the best option for your unique situation. Once you have narrowed down your search to a few refinance options, you can contact the mortgage company to get an application started.