How to Apply for a Jumbo Loan (Before Mortgage Rates Jump)

Mortgage rates continue to tick upwards and home prices are hitting all-time highs, though the market does appear to be slowing down. After a strong open to the spring season, listings are coming in with a bit more balance and breathing room, revealing fewer offers and less competition as the season progresses. As a result, many homebuyers are looking to apply for a jumbo loan. High purchase prices create a challenge for homebuyers who want to buy a bigger home or refinance as mortgage rates increase, and jumbo loans offer one solution to the high-cost dilemma.

Many homebuyers are trying to figure out how much they can afford and how far they’re willing to stretch themselves on their next mortgage. Whether your want to refinance and start a big renovation or buy a new home with more square footage, the challenge remains how to qualify for a jumbo loan. And many are deciding to apply for a jumbo loan.

If you’re ready to buy a home and want a mortgage that fits your budget and helps you build financial stability, this article can help.

Jumbo Loan Limits for 2022

In 2022, jumbo loan limits increased and are currently $647,200 in most of the U.S. and up to $970,800 in high-cost areas. Why does this matter? Jumbo loan limits put mortgages in two distinct buckets: conforming home loans and non-conforming home loans.

Depending on your homeownership goals, you might want to shop within conforming limits so you can qualify for the lowest rate possible and enjoy less strict criteria to qualify. Historically, conforming loans offer homebuyers the lowest rates and better options.

However, jumbo rates are dropping and are even lower than conforming home loans in some cases. Jumbo loans offer freedom and opportunity for homebuyers, especially in areas where the cost of homes is substantially higher.

 If you’d like to discuss your specific situation, please schedule a call or reach me directly at (408) 610-8011.

Jumbo Loans in a Snapshot

A jumbo mortgage is a home loan that exceeds the standard conforming loan limits set by Freddie Mac and Fannie Mae. For this reason, jumbo loans are also referred to as non-conforming loans since they don’t “conform” to the standard loan limits. (Conforming loans are government-backed and historically offer lower mortgage rates and flexible guidelines to qualify.)

Since jumbo loans are not government-backed, they are often considered riskier loans. As a result, mortgage lenders set stricter requirements when they underwrite jumbo loans, and mortgage rates are often slightly higher. Right now in 2022, this isn’t always the case, so it’s a good time to take action and apply early.

Click here for the jumbo loan limit threshold for every county across the U.S.

How to Qualify for a Jumbo Loan

Each mortgage lender often requires unique criteria for borrowers who apply for a jumbo loan. In addition, since jumbo mortgages aren’t government-backed (by Fannie Mae or Freddie Mac), lenders consider jumbo loans a higher risk. As a result, lenders typically have stricter requirements to determine risk. Ultimately, lenders look at borrower profiles to decide whether or not a loan applicant will be able to afford higher mortgage payments and pay back the loan as agreed.

• A few specific requirements that mortgage lenders often look for:
• High credit score or 680+
• High cash reserves
• Large down payment (20% or higher)
• Low debt-to-income ratio (36% or lower)
• Verifiable income and employment

Top Tips to Increase Verified Income

Increasing your income might sound like an obvious strategy and one that is just out of reach. After all, most of us can’t flip a switch to increase our income on any given day. That said, if you can find ways to show more income, you’ll be able to qualify for a better jumbo loan.

Employment is only one aspect of qualified income. When you consider presenting more income to a mortgage lender, think of the following revenue streams:

• investment gains, interest, and dividends
• restricted stock units (RSU)
• employee stock purchase plans (ESPP shares)
• rental property income
• spousal support and/or child support

Also, consider any part-time or business income, as long as you’ve been earning for at least two years. What’s more, if you have relatives staying on and paying rent, don’t be shy to include that as rental income. Discuss it with a qualified mortgage broker and learn about your best loan options.

If you’re wondering which path is better, we’d love to help. Feel free to reach me directly at (408) 610-8011 or schedule a call.

Top Tips to Improve Your Debt-to-Income Ratio

When lenders consider your debt-to-income ratio, your ratio is measured by comparing your monthly debt obligations against your income. For this reason, focus on reducing your monthly payments more than simply paying off a specific loan.

First, pay down your debt.

Your debt-to-income ratio is one of the biggest factors that mortgage lenders look at when deciding risk. Start by paying down consumer credit cards, then consider consolidating loans or restructuring student loan debt.

If you’re carrying multiple credit cards, consider transferring high-rate cards to a 0% credit card or other offers that will reduce your monthly debt obligations. If you carry an auto loan, consider refinancing to lower your monthly payment.

Second, boost your credit score.

Paying down high-rate credit cards and lowering your balances will boost your credit score the fastest. Raising your credit score is a smart strategy that almost always helps you qualify for a bigger mortgage. When you have a credit score above 740, you’ll be offered lower rates, betters terms, and a higher loan amount.

Summary

The current jumbo loan limits are set at $647,200 for most of the U.S., with a higher limit up to $970,800 in specific high-cost counties. If you’re shopping for a higher-priced home that exceeds conforming loan limits, jumbo loans offer a new path to homeownership.

What’s Next

If you’re wondering how to afford a new home in today’s housing market, deciding to apply for a jumbo loan can put you one step closer. We work with homeowners throughout California, Oregon, Washington and Colorado. Our goal is to help you reach financial freedom and save money on your mortgage. Feel free to reach me directly at (408) 610-8011. We’d love to help.