May 10, 2021
How much home loan can you apply for successfully? The answer, depending on the housing market and other variables, might surprise you.
It’s one thing to apply for a home loan that meets or is lower than the annual county limit established by the Federal Housing Finance Agency (FHFA). Those loans are easier to qualify for because they can be purchased or guaranteed by Fannie Mae and Freddie mac. They are known as conforming loans.
But what about those who seek loans that are priced higher than that per-county limit?
The answer itself is simple–borrowers can apply for a loan that exceeds county limits. These higher loans are called jumbo mortgages. Borrowers who qualify for them can get a home loan that’s higher than the county limit. But before you apply, there are some factors you need to know.
There are some things newcomers to FHA jumbo loans might not know. For example, jumbo loans cost more. They involve a higher risk for the lender because the loans cannot be purchased or guaranteed by Fannie Mae or Freddie Mac on the secondary market.
Jumbo loans may, depending on the lender, require higher qualifying FICO scores and lower debt-to-income ratios. You may find your participating lender requires a back-end ratio of no higher than 43%. The back-end ratio is the amount of your income taken up by your monthly financial obligations.
Some sources report lenders with standards that allow a debt ratio of absolutely no higher than 45%. As you can see, some lenders will be more generous with these ratios than others.
FICO score requirements for FHA jumbo loans? Expect some lenders to start with scores in the upper 600s or in the 700 range. Your experience may vary.
The down payment is another issue you will need to get familiar with where jumbo loans are concerned. Why? Some participating FHA lenders are not willing to accept down payment assistance on a jumbo loan, and you should expect to pay all closing costs and down payment without help. Borrowers should know that non-traditional credit may not be acceptable to lenders when applying for jumbo mortgages.
One factor that sometimes applies to those who aren’t familiar with how mortgage loans work? The use of loan funds. Some borrowers new to mortgage lending want to apply for a jumbo loan even though the sale price of the home doesn’t require one.
This is often the case for those interested in trying to collect the difference between the asking price of the home and the loan amount in cash at closing time. But can this be done?
Borrowers should know that this is not permitted. Cash back at closing time for FHA home loans for jumbo mortgages and conforming loans alike is generally restricted to refunds. What kind of refunds? Usually for money paid up front for things that would ultimately be financed into the loan amount such as the Up-Front Mortgage Insurance Premium.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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