Jumbo loans have a higher level of risk than many other loan products. To compensate for this risk, many lenders require a larger downpayment, as high as 20% or more, which, on a jumbo loan, can equal hundreds of thousands of dollars.
But you could use a minimum down jumbo loan, and these constructive tips will help make it happen.
Minimum Down Jumbo Loans: 5 Tips for Using these Loans
Jumbo loans with a minimum downpayment can be highly beneficial for numerous homeowners across the country, but if you want to take advantage of this unique form of financing, you need the right approach. Here are a few tips for how you can use minimum down jumbo loans…
1. Prepare and Organize All Documents Thoroughly, Especially Income Documents
These loans are usually used by homebuyers who have complex sources of income, so the typical application process may not apply. Quite frankly, if your income is complicated, the application process will be as well, which means you need to prepare your finances and organize all documents to ensure proper documentation.
It’s common for jumbo loans to require more paperwork, and income verification will likely be more thorough than the process used with conventional loans. For example, if you are a self-employed borrower, you may be required to bring multiple years of tax returns; with a conventional loan you would likely only need one.
There will likely be a thorough inspection of your credit and debt load, so preparing documents that apply to these factors will also be helpful.
2. Stockpile Cash Reserves
Jumbo loans, as we have discussed, are inherently risky to the lender, at least compared to conventional loans and loan insured by government agencies. To reduce this risk, many lender will require a large amount of cash reserves. Essentially, these reserves act as a safety net that can be used in the event of financial difficulties.
The total amount you need in reserves will vary by the loan and by the lending institution. 12 months worth of reserves is common, but it can be more or less. If you are required to have 12 months worth of reserves, this means you must have the equivalent of 12 mortgage payments in savings or in verifiable assets. So if your mortgage payment on the minimum down jumbo loan is $10,000, you would need $120,000 in reserves, assuming 12 months is required. In most cases, reserve requirements will range from 6 to 12 months worth of mortgage payments.
Some lenders may require more, while other will require less. You may also be able to use non-liquid assets such as stocks as your reserves, but you will need to work with an experienced lending agent to make this happen.
3. Learn About Lender’s Property Eligibility
Compared to conforming loans, there are a variety of restriction on what property you can purchase with a jumbo loan, especially a jumbo loan that has a minimal down payment. Lenders need to know that the property on which they are lending has a specific value, and certain homes may be ineligible for purchase with this financing. In particular, many lenders only offer financing on primary first homes, so if you want to purchase a second home, you may need to find a different lender. Other lenders will offer jumbo loans on second homes, although the application and approval process is even more strict.
Also, some lenders choose to not write jumbo loans for the purchase of a short sale or foreclosed property, and some avoid loans on condominiums.
These requirements vary, so it’s best to talk with your lender to learn about their specific requirements and see what types of properties you can buy.
4. If Possible, Improve Your Credit Score
Credit scores are one of the most important factors for measuring your risk as a borrower. As risk goes down, so too will the requirements for a downpayment. Therefore, if you have a high credit score, you will be more likely to secure a minimum downpayment jumbo loan.
If you plan on applying for a jumbo loan in the near future, do yourself a favor and pull your credit information from the major credit bureaus. Depending on what you find, you may be able to make changes that improve your score and thereby lower the potential downpayment requirements. If possible, you may be able to remove false or outdated negative information on your credit report. You can also make changes such as paying off debts to lower your debt-to-income ratio, which should also result in a better score.
5. Avoid Lenders’ Red Flags
Lenders look for a variety of information, and if they see anything that raises their attention, they may choose to not write a jumbo loan. Applications for minimum down jumbo loans are scrutinized with a higher level of detail than other loans, and if there are any past issues in your credit, financial, and work history, you may be unable to secure financing.
One of the biggest red flags is changing careers in the past two years. While your income may be stellar, changing careers creates statistical risk, so lenders may be unwilling to work with you if you have shifted jobs in the past 24 months. This is especially true if you have changed from an employee to a self-employed professional in the past two years.
If your assets cannot be verified, it also raises issues for lenders, and if any questions arise as to the source of your downpayment or cash reserves, it could stall or completely stop your application.
The Service You Deserve for a Loan that Fits Your Needs
You deserve a jumbo loan that helps you purchase a wonderful home, all without consuming your assets through a massive downpayment. Contact us today and learn how we can help you secure financing for an affordable loan.
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