In most areas, if you decide to purchase a home that costs more than $424,100, you'll need to apply for a jumbo mortgage instead of a conventional home loan. To increase your chances of being approved for the mortgage, follow these simple tips.
1. Improve Your Credit Score
Since jumbo mortgages cannot be bought or secured by a government enterprise (like Fannie Mae or Freddie Mac), they tend to have strict underwriting guidelines. One thing you can do to boost your approval odds is to improve your credit score as much as possible.
Start by reviewing your credit report for any information that is incorrect or out of date. Dispute any info that is flat out wrong. If you have any credit cards, make sure that they are not maxed out. Try to keep revolving forms of debt, like credit cards and credit lines, limited to 30 percent or less of the total limit. For example, if your card has a limit of $10,000, keep the balance under $3,000. Always make any loan payments on time so that you are not penalized for late payments.
2. Be Able to Prove Your Income
One of the easiest ways to ensure the lender sees you as a favorable credit risk is to make sure you have proof of your income. If you work a conventional salaried job, this should not be a problem when seeking jumbo loans. Just provide the lender with a couple months' worth of your paycheck stubs and copies of your most recent tax returns.
However, if you are self employed, this may be harder to do. Many lenders require self-employed borrowers to provide at least a couple years of tax returns to verify their income.
3. Have a Savings Account for Your Down Payment and Emergency Fund
Borrowers with sizable down payments are lower risks to lenders than those with smaller down payments. A sizable down payment ensures that the borrower has some equity in the home and decreases the loan-to-value ratio of the mortgage. In fact, some lenders require the borrower to have a down payment of a certain amount. This figure varies from lender to lender, but it can be anywhere from 15 to 30 percent. Generally, the higher your potential down payment, the better.
If you don't have to use all of your down payment savings for your home, you'll have some cash reserves to help cover closing costs and moving expenses. Ideally, you should have some savings left after you pay all of your mortgage expenses in case of job loss or unexpected home repairs.