Jumbo Loan Programs for a Credit Score Under 700
Jumbo loan programs can help you obtain affordable financing for high end homes in California and all across the country. However, they also come with increased scrutiny and enhanced requirements. Because of the increased risk lenders face by offering jumbo loan programs, you will need to meet more stringent requirements than for a traditional mortgage loan.
Most people assume jumbo loan programs require at least a 700 FICO credit score to qualify. While this is the typical number required for lower interest rates and reduced down payments, it is still possible to purchase a high end home with a sub 700 credit score. Let’s discuss what it takes to qualify for jumbo home loan programs with a lower FICO credit score….
Traditional Mortgage Loan vs Jumbo Home Mortgages
Obtaining a traditional mortgage loan still requires a decent credit score. When we say “traditional,” we are simply referring to standard and not jumbo home mortgages. A traditional mortgage loan backed by Fannie Mae (which does not provide backing for jumbo home mortgages) requires a minimum credit score of 620 (for a fixed-rate loan). This is also the required minimum score for loans guaranteed by federal government agencies such as the FHA, Office of Veterans Affairs, and the USDA’s rural development program.
Since jumbo home mortgages are not covered or supported by government institutions, lenders that offer them put themselves at significantly greater risk than with a traditional mortgage loan. Therefore, jumbo lenders have higher standards for who qualifies. This is why most lenders that offer jumbo loan programs want to see a credit score of at least 700 in these cases.
Why Does a Jumbo Mortgage Lender Want Higher Scores?
A jumbo mortgage lender wants to see a higher credit score because the lender does not have the protection of federally backed financial assurances. Of course, a credit score is considered to be the most accurate marker of personal financial responsibility.
Fannie Mae only provides backing for a certain amount based on the property’s location and general foreclosure rates. The predetermined national lending average is $424,100. However, residents in San Diego County can actually obtain Fannie Mae’s backing for loans as large as $612,000 since property value is generally higher than many other areas nationwide.
Home loans above this amount are considered “jumbo loans.” Fannie Mae will not back a jumbo mortgage lender. This means lenders incur added uncertainty in recouping investments should the borrower default on the mortgage. Therefore, jumbo loan borrowers usually are required to meet added stipulations. Some of these include higher down payments, higher credit scores, and lower debt-to-income ratios.
Jumbo Loan Requirements for Sub 700 Credit Scores
It is commonly assumed that a FICO credit score for a jumbo loan has to be at least 700. However, it is important to understand this is not always the case. Jumbo loan programs are available even if you don’t have an extremely high credit score. However, jumbo loan requirements are even more stringent for borrowers with sub 700 credit scores. Let’s take a look at some of these requirements….
Bring at Least a 20% Down Payment
One of the most common jumbo loan requirements for lower credit scores is a higher down payment. A large down payment not only helps you reduce the total amount you have to borrow, it also reduces your future monthly payments. With jumbo loans, even a small down payment, such as 5%, represents tens of thousands of dollars over the life of the mortgage. However, a lower credit score requires the borrower to lower his or her loan-to-value ratio. In order to do this, you will most likely need to prepare for a 20% (or larger) down payment. The more money you can bring to the table, the more likely the lender will be to mortgage the difference.
Bring Two Years Worth of Tax Returns
In most cases, two years of tax returns is one of the typical jumbo loan requirements. However, in some cases (like having an excellent credit score) a lender will accept only one year’s worth of financial information. With a lower credit score for a jumbo loan programs, it is virtually guaranteed that you will need two years of tax returns to help verify your income.
Provide Proof of Income
To further verify your income, expect to be asked for detailed bank statements and pay stubs. Lenders want to know your pay frequency, as well as the amount you make. These types of financial documents can help provide proof you have a strong income portfolio and can handle the larger debt load of a jumbo loan. Any other documents that can help verify your income, such as past invoices or contracts, are also beneficial to provide.
Lower Your Debt to Income Ratio
Outside of credit scores, your debt-to-income ratio (DTI) is perhaps the most important figure lenders want to see when considering jumbo home mortgages. This figure, which is given in percentage form, is the amount of money you bring in compared to the amount you owe. For example, if you make $10,000 a month and owe $2,500 a month in debt payments, your debt to income ratio is 25%. Lenders consider a lower DTI to be less risky than a higher one.
While decreasing your debt is one way to lower the DTI, you can also increase your documented income with accounts such as IRAs, investment accounts and 401(k) accounts. While these accounts are treated differently due to the nature of jumbo loans, they can show lenders you have available resources to help support larger mortgage payments.
Have at Least Six Months of Mortgage Payments
When borrowing large amounts of capital, banks want to see a significant amount of money in your savings accounts. This reserve cash gives lenders greater reassurance that you are not only financially responsible, but also that you can handle your mortgage payments if you experience a drop in income for any reason. Most lenders want to see roughly six months’ worth of mortgage (and other debt) payments in reserve. However, when dealing with a lower credit score for a jumbo loan, lenders may require a full year’s worth of savings. Of course, any reserve cash must be in addition to a down payment, closing costs, and other applicable fees.
Look Into Adjustable Rate Mortgage Loans
In some cases, adjustable rate mortgage loans (or ARM loans), are the best option for both you and the lender. Adjustable rate mortgage loans can incur some financial uncertainty, but interest rate increase amounts are usually capped so as to prevent severe ballooning at any point. If you want to obtain a jumbo loan with a credit score below 700, ARM loans may help you get the loan you need while adhering to your monthly budgetary requirements.
Get the Best Jumbo Mortgage Rates in California
Regardless of an individual’s credit score, San Diego Purchase Loans is dedicated to getting our clients the best jumbo mortgage rates in California and nationwide. If you are looking to secure a jumbo loan in order to to purchase the home of your dreams, we want to help make your dream a reality.
Together, we can help you obtain accurate information on affordable financing for your home, including all available jumbo loan programs you qualify for. We strive to get you the best jumbo mortgage rates while adhering to our policy of common-sense underwriting. Contact us today and let our team of experts help you find the right loan with the right terms…. so you can purchase the home you will love coming home to for many years to come!
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