Homes come in various shapes, sizes, and styles, but most mortgage products, despite being seemingly dissimilar, work almost similarly. There are several conventional and government-backed loan products available right now with slight variations in their underwriting and documentation requirements.
However, the documentation needed and financial standards may change more significantly if you need a jumbo mortgage loan in California. A jumbo loan is a mortgage greater than the limit regulated by the Office of Federal Housing Enterprise Oversight set every year.
There are a few key elements involved in jumbo loans and the process for taking them out. You will read more about those elements below.
1. Credit Score Considerations
Unlike conventional loans, those seeking a jumbo mortgage loan in California must meet stricter credit requirements. Namely, borrowers must have top-notch credit and a noticeably low debt-to-income ratio (an individual’s monthly debt payments divided by their gross monthly income). Such rigorous credit requirements justify the risks a lender has to bear after issuing a jumbo loan. After all, these loans involve a lot of money, and there will be no guarantees by Freddie Mac or Fannie Mae.
2. Income Considerations
The borrower has to show that they have access to cash to cover mortgage payments, which may be lofty if the mortgage is a thirty-year fixed rate. The loan size will dictate income and required reserve levels. However, every borrower has to provide W-2 tax forms going back two years and a month of pay stubs. Self-employed individuals face even tighter income requirements: a minimum of sixty days of current bank statements and two years of tax returns. Additionally, the borrower must also possess liquid assets and enough cash to cover six to twelve months of mortgage payments. All applicants must properly document any other loans held.
3. Interest Rates & Terms
For a jumbo mortgage loan in California, the average yearly percentage rate is typically similar to the rate offered by conventional mortgages and, in some instances, even lower.
4. Loan Amount Thresholds
The biggest sum of money one can borrow varies from one state to another and sometimes even by county. Last year, the maximum of a jumbo loan was $726,200 for most of the country. The amount was hiked by $79,000 compared to 2022. Counties across the nation with higher incomes have a set baseline of $1,089,300, equal to 150% of $726,200. Note that for a few areas outside the continental United States, including Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the baseline was $1,089,300.
5. Down Payment Requirements
Down payments for jumbo loans are usually about 10% to 15% of the overall purchase price.
Summing it Up
A jumbo mortgage loan in California will truly come in handy if one has a luxury property in mind and needs a higher level of financing than what is conventionally available. Then again, eligibility requirements for jumbo loans are a lot more stringent, and there are a few considerations, such as heightened borrowing charges.