Taking out any home loan is a big decision, but for consumers considering the larger "jumbo" option, there's even more at stake. The size of these mortgages can often increase the financial stress on a household. Many places consider $424,100 or more a jumbo loan, but in places where house values are higher, such a loan's qualification may even be $636,150 or more. Either way, applicants must ensure that they have at least six months' worth of repayments in reserve.
Unlike conforming mortgage loans, lenders of jumbo loans set their own underwriting rules. It means that the guidelines on minimum credit scores and cash reserves will vary from lender to lender. Signing up for a larger than average debt shouldn't be something any homebuyer takes lightly. This is why many lenders demand a large reserve of payments to be held to ensure that borrowers have the right financial footing to afford their mortgage.
In general, conforming mortgages need borrowers to have enough savings to meet a couple of repayments. Quicken Loans Vice President Bill Banfield says larger borrowing requires bigger reserves, as lenders "are trying to make sure the client is in a better situation," explains Banfield. As a result, says PNC Bank Mortgage Loan Officer Tyler Case, standard reserves vary between six and twelve months' worth of repayments. At PNC, jumbo loan applicants must have six months of reserves to cover down payments, closing costs, interest, taxes and insurance.
With higher home values, some consumers may have no other option than to go for a jumbo loan. Before applying, though, make sure you are financially prepared for such a large debt.
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