If you want to buy a property that exceeds $766,550, a jumbo loan may be one of the few options available. But, with a jumbo loan, you’ll need a higher down payment and better credit score to qualify. Before applying for a jumbo loan, it may be worth reviewing your options and understanding your credit score.
Tip # 1 – Review Your Jumbo Loan Options
Before making improvements to your finances, knowing what goals you’re targeting can be helpful. Research a few jumbo loan providers to understand their eligibility requirements. Most jumbo loan lenders require something similar to the following:
- A good credit score – You’ll usually need at least a 700 to qualify for a jumbo loan. Some lenders may require an even higher score.
- A solid debt-to-income (DTI) ratio – Jumbo loan lenders also consider how much debt you have compared to your income. This gives them a better idea of how likely it is you’ll be able to make your monthly payments. Conventional mortgages may require a maximum DTI of 43%, but with a jumbo loan, it can be as low as 36%.
- Down payment – You’ll need to put a significant amount of money down on your jumbo loan. While the percentage may be lower (usually around 10%), this number is usually much higher when you factor in the higher purchase price. Additionally, most lenders want at least 20%, and some may even require 25% or 30%.
Understanding the jumbo lender’s interest rates and maximum loan limits is also good. You can usually expect to pay a higher interest rate with a jumbo loan since it’s considered a riskier investment. Even jumbo loans have a limit on how much you can borrow. This limit varies, depending on the lender. However, it’s usually somewhere between $2.5 and $3 million.
Tip # 2 – Pull a Copy of Your Credit Score
Now that you know what you’ll need to qualify for a jumbo loan, it’s time to see how your finances compare. Pull a copy of your credit score from the three major credit reporting agencies. Decide if you need to work on your credit score before applying for a loan. You can boost your credit score by doing things like:
- Make your monthly payments on time each month.
- Avoid taking out additional debt.
- Pay down credit card debt.
- Avoid closing any accounts with a long history.
- Review your credit score for any discrepancies.
- Avoid getting too close to your credit limits.
Tip # 3 – Begin Saving
Because jumbo loans require a hefty down payment, it’s also never too early to begin saving. The more money you have to put down on the jumbo loan, the more likely you’ll qualify. Additionally, a bigger down payment can earn you a more competitive interest rate and lower monthly payments.
Tip # 4- Create a Budget and Stick To It
Creating a budget now and sticking to it can help you achieve your financial goals faster. If possible, consider budgeting for your jumbo loan payments now. Move the money aside into a separate account so you can get in the habit of a higher mortgage without the risk. You can use this money toward a down payment when you’re ready to buy.
Tip # 5 – Begin Home Shopping Now
It’s never too early to begin monitoring the market in which you want to buy. Property costs continue to fluctuate based on current interest rates and buyer demand. Some people who aim to get a jumbo loan do so to acquire a unique property.
If you have very specific buying needs, like a modern design or oceanfront home, now is the time to obtain financing and begin searching for your dream home.
A downward-sloping market in your area could potentially bring your dream home within the conventional conforming limits. Good negotiation skills may also help you avoid a jumbo loan if the property you’re interested in is at or near the limits. Keep in mind that the maximum limits also change annually, so it’s always a good idea to know the latest rules. For example, the maximum limit jumped by over $40,000 from 2023 to 2024.
A jumbo loan can help you purchase your dream home. Before qualifying, though, you’ll need a good credit score and low DTI. You’ll also need to meet your specific lender’s eligibility requirements. It’s never too early to check your credit score or begin saving. An excellent credit score paired with a large down payment can qualify you for more affordable mortgage payments.