One of the biggest myths in the mortgage industry is the belief that you need a nearly-perfect credit score to use a jumbo loan. But as we’ll show, minimum-credit-score jumbo loans are available.
The Myth: You Need a High Credit Score to Get a Jumbo Loan
Jumbo loans are some of the most restricted types of mortgages in the industry. We don’t mean to say that approval for a jumbo loan is next to impossible. (Far from it!) We merely mean that compared to other loans, such as conventional loans and FHA loans, getting approval for a jumbo loan is a little more complicated. You need a larger income, a larger downpayment, and, in some cases, a higher credit score.
This is because jumbo loans create more risk to lenders. Smaller loans often have the support of government agencies and government-backed corporations like Fannie Mae. For example, an FHA loan, while not actually issued by the FHA, is essentially guaranteed by this federal agency, which provides financial compensation if the loan goes into default. This financial support decreases risk to lenders and allows them to make more loans with greater confidence. But there are limits to the size of home loans that will be supported by government organizations.
Jumbo loans are, by their very nature, above the limits set by government institutions. This means that lenders do not get the protection they would have if the loan were smaller and fit the requirements of an FHA, conventional, or USDA loan, to name a few. Because lenders are essentially on their own, assuming all the risk, and because the loans are for a much larger amount, lenders are very careful about issuing these loans.
In turn, this has led some mortgage lenders to create higher credit-score requirements for these loans. Some (but not all, as we will describe) have credit requirements as high as 700, meaning if you don’t have a 700 credit score, you are automatically disqualified for financing.
These requirements have created a myth. Because some lenders require a 700 credit score, many assume that you need a 700 credit score for all jumbo loans.
But this is simply a myth!
The Truth: Minimum-Credit-Score Jumbo Loans Are Available
While some lenders may require a credit score of 700 or more, it’s simply untrue to say that you need a 700 score for all jumbo loans. In fact, there are many options available, including jumbo loan financing from our team.
Disproving the Myth with a 620-Credit-Score Jumbo Loan
At San Diego Purchase Loans, we take pride in providing high-quality loans that are accessible to as many people as possible. With this in mind, we have programs available that offer jumbo loans to borrowers with credit scores as low as 620. This is not an extremely low credit score, so it won’t really count as “low-credit” financing, but it certainly disproves the myth that you need a high score to secure a jumbo loan.
For these loans, you need a downpayment of 25%. We recognize that this can be a massive amount, especially on homes worth multiple millions of dollars. However, if you have the available cash, yet suffer from lingering poor credit, these loans can help.
Different Lenders have Different Requirements
It’s important to reexamine how this myth started and why it’s false. The most important part is to note that different lenders, banks, and credit unions have different requirements for jumbo loans. There are variations on downpayments, debt ratios, and credit scores. Therefore, saying that you cant’ get a jumbo loan without a 700 credit score is simply false. Again, some mortgage companies may require this score. But not all.
Who Could Benefit from Minimum-Credit-Score Jumbo Loans?
Many people will benefit from a minimum-credit-score jumbo loan. In general, these loans are made for people with high incomes. You don’t have to be a massive earner, bringing in millions of dollars a year, but usually these loans are for individuals with incomes of $200,000 or more. However, as most people know, a high income does not automatically mean a high credit score.
Here are a few examples of people who will likely benefit from minimum-credit-score jumbo loans…
People with Medical Bills
Medical bills can significantly strain your finances. Even if you have quality insurance, medical bills can take tens of thousands of dollars from your savings. These costs can create problems paying other bills, and they can significantly increase your total debts. Both of these situations can lead to a lower credit score.
Another common debt for many Americans is student loans. These loans can create monthly bills around $300 for many former students, and some have debt payments approaching $1,000 a month. For even high-income earners, this can create problems with credit, as finances are often strained.
A divorce is certainly not a guarantee of financial struggle leading to poor credit. But divorce is costly, often ruining the financial futures of both parties. When lawyer and legal fees come due, it’s easy to let your credit slip. If you have experienced a divorce that has caused a dip in credit, but still have a strong income, these minimum-credit-score loans may be perfect for you!
Identity Theft Victims
Identify theft is becoming all too common. It not only ruins your finances, it can also create a decline in your total credit score. By no fault of your own, your identity has been compromised and your score could be lowered, which would make it harder to secure a jumbo loan.
If you were laid off and had no income, your credit could have been reduced. But now that you are back to work and enjoying a high paycheck, you may be able to secure a jumbo loan for your purchase.
Learn More About our World-Class Service to Top-Quality Loans
We take pride in serving the area with high-quality jumbo loans. Contact our team today to learn more about our minimum-credit-score jumbo loans!