Jumbo Loans Houston
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What Is a Jumbo Loan?
Whether you have a large family and need room for everyone, or your Houston dream home is in a more expensive city or neighborhood in Houston, you will likely need to borrow a sizeable amount of money. Conventional lenders are subject to limitations on the amount of money they can lend. Unless you have the available cash to place a down payment that would reduce the principal borrowed, you may not be eligible for a conforming loan.
A jumbo loan is one where the amount borrowed is more than the conforming loan limits defined by the Federal Housing Finance Agency (FHFA). In 2020, the loan limit on conforming loans is $510,400 in most locations. For areas where home costs are higher, the 2020 limit is $765,600. Unlike conventional loans backed by government programs such as FHA, Freddie Mac, or Fannie Mae, jumbo loans are issued by private lenders.
While there are some standard guidelines and requirements for jumbo loans, there are many variables. You need a lender like Rock Mortgage, experienced with Texas jumbo loans, that can guide you through the process so that you understand your options.
Your Complete Guide to Jumbo Loans
Types of Jumbo Loans
1- Home Purchase
The terms and requirements for the purchase of a single-unit home will vary from multi-unit dwellings. Check with your lender for the options based on your loan request, down payment, and other requirements.
2- Rate or Term Refinance
3- Cash-Out Refinance
- Under 40% equity in your home = up to $350,000 cash
- Between 40% and 50% equity in your home = up to $500,000 cash
- 50% or more equity in your home = up to $750,000 cash
4- Investment Property
- It requires 10% additional down payment
- The appraiser must have two comparable properties within 5 acres of the property you want to buy
- The value of the land must not exceed 35% of the combined value of the house and land
Jumbo Loan Requirements
1- Debt-to-income ratio (DTI)
2- Credit score
4- Cash reserves
6- Interest rates
7- Loan limits
First Time Home Buyers in Houston May Not Need a Significant Down Payment
A down payment of 20%, or one-fifth of the total purchase price, is often recommended as appropriate for first-time home buyers. Even with Houston home prices being below the national average, this can be an unattainable goal. The good news is, in most cases, a 20% down payment is not necessary to secure a mortgage. Depending on the loan you choose, you may only need to make a down payment of up to 3.5%. With some mortgage products, there is no down payment required at all.
While this makes mortgages much more attainable for people of modest means, there is a tradeoff involved. First-time home buyers Houston who make a low down payment typically have to pay mortgage insurance as part of their monthly mortgage payment. This is separate from the homeowner's
policy that you have to obtain to secure your mortgage, protecting you from damage to your property. You must factor both the mortgage insurance and the homeowner's insurance premium into your monthly mortgage payment when determining whether you can afford it.
How JUMBO Loans Houston Work
If you have your eyes set on a home that costs significantly more than $500,000, you may need to work with a mortgage company Houston that specializes in jumbo loans. While the right lender can help you access the money you need, know that the process for acquiring such a large loan will be much more rigorous than that associated with a typical mortgage. This is because jumbo loans carry much more risk for lenders than traditional mortgages, as Freddie Mac or Fannie Mae does not back them, and they involve much more money.
As with traditional mortgages, the lending requirements for jumbo loans have become increasingly stringent since 2008. In addition to a stellar credit score of 700 or higher, you must have a very low debt-to-income ratio. While some lenders will accept a DTI of 43%, you should aim to reduce your debt load so that it is no more than 36% of your monthly income.
If you meet the credit requirements, you must then complete the cash and income requirements. Mortgage lenders Houston wants to see that jumbo loan applicants have enough cash on hand to cover monthly payments, which are likely extremely high. While the specifics will depend on the size of the loan you plan to take out, be prepared to present at least two years of tax returns and 30 days of paystubs. If you are self-employed, you’ll need to show at least 60-days’ worth of bank statements. In addition to sizeable savings, the lender may also require you to have provable liquid assets. To qualify, the value of your cash reserves and liquid assets must be enough to cover at least six months of mortgage payments.
Down Payment Requirements for JUMBO Loans Houston
In the past, mortgage lenders required a 30% down payment on jumbo loans. Fortunately, that is one requirement that has loosened up in recent years. Some lenders are willing to accept a down payment as low as 10% to 15% of the home’s purchase price. However, while you could save money upfront by putting down a lower down payment, it will cost you more in the long run. A down payment of 20% can help you avoid private mortgage insurance and reduce your interest on the loan.
The Profile of a JUMBO Loan Applicant
Jumbo loan applicants typically fall into a very specific demographic. These individuals usually fall into the segment financial advisors refer to as “HENRY” — high-income earners, not rich yet. They make between $250,000 and $500,000 per year, but they are not at the point in their lives where they have amassed a large amount of wealth yet. They also have strong credit profiles with high scores and long-established credit history. Finally, individuals in the HENRY segment have robust retirement savings to which they have contributed for years.
If you fit the bill of a jumbo loan applicant and meet all the requirements above, and if you have your eye on a home that’s value exceeds conventional mortgage limits, talk to one of our lenders about JUMBO loans Houston. Call us at (832) 230-3067 or send us a message online.