Everything You Need To Know About Jumbo Loans

Troy Reichert

Troy Reichert

Troy Reichert is the owner of Reichert Mortgage LLC. With over 20 years of serving the United States Airforce, Troy wants to continue to give back to the community by helping give people their best chance at securing a home.

At Reichert Mortgage Team, our knowledgeable team is dedicated to helping the residents of Colorado Springs find a home loan that’s right for them. Because home loans can easily become overwhelming and confusing, we’re also passionate about educating the community on different types of loans and the benefits of each one. Whether you’re interested in a VA home loan, or are considering a conventional loan, our team is here to help you throughout the entire loan process.

One type of loan  people don’t often know much about is a jumbo loan. If you’re interested in a home with a higher purchase price, then a jumbo loan may be the perfect option for you. We are going to break down everything there is to know about jumbo loans in order to help you decide whether it’s the right loan for you and your family.

What Is A Jumbo Loan?

A jumbo loan is a type of loan that exceeds the loan limit set by the Federal Housing Finance Agency. Conventional loan limits differ depending on the area. In Colorado Springs, the limit for conventional loans in 2021 is $548, 250, a substantial increase from 2020’s $510,400 limit. This means that a loan larger than $548,250 would be considered a jumbo loan.

Jumbo Loan Qualifications

When you’re buying a home, finding a loan that’s right for you is one of the most important decisions you make. Jumbo loans are designed to help homebuyers fund the purchase of a high-value home. Because the loan amount is larger than a standard home loan and the lender takes on a bigger risk, there are strict requirements for a borrower to qualify.

  1. Credit Score
    • In order to be approved for a jumbo loan, you will need to have a high credit score. Due to the increased risk of this type of loan, lenders want to see that a borrower is financially responsible. Having a high credit score is a great way to show a lender that you are responsible with your money, and will be able to pay your home mortgage.
    • Any foreclosures, bankruptcies, late payments or missed payments have a high chance of getting your jumbo loan application denied.
  2. Debt-To-Income Ratio
    • Debt-to-income ratio shows a lender how much gross monthly income you have, and how much you owe in any outstanding debts. You want to have a low debt-to-income ratio because it means that you don’t have a lot of debt compared to your gross monthly income. 
    • If you have a near-perfect, high credit score or have high cash reserves, a lender may choose to overlook a high debt-to-income ratio.
  3. Cash Reserves
    • Cash reserves refers to the amount of funds that an individual or company has set aside in case they need to make a large purchase or cover an unexpected expense.
    • Depending on the amount of the jumbo loan, some lenders will determine if a borrower would be able to pay their mortgage for a certain amount of time using only their cash reserves. This allows for a lender to calculate the worst case scenario and see if a borrower would still be able to make their payments. 
    • A good rule of thumb is to have enough cash reserves to cover 6-12 months of mortgage payments.

What Documents Do I Need For A Jumbo Loan Application?

In addition to having a high credit score, a large cash reserve and a low debt-to-income ratio, lenders require certain documents during the jumbo loan application process. Lenders will want to see proof of income as well as the amount of any of these other funds:

  1. Annual tax returns for the past 2 years
  2. W-2s for the past 2 years
  3. Your most recent pay stub
  4. Bank statements for the past 2 months
  5. A profit/loss statement if you run a private business or are self-employed 
  6. Proof of additional income such as investment income, bonuses and commissions

As you can see, there are a lot of details that lenders look at when it comes to approving someone’s jumbo loan application. In order to have the best chance at being approved, make sure all of your required documents are organized and you are as financially healthy as possible.

Let Reichert Mortgage Team Help You Fund Your Dream Home

With so many different types of loans available, it’s difficult to figure out which one is the best option for you and your family. With the Reichert Mortgage Team on your side, we’ll explain your mortgage options to you, and help you decide which one is best for your unique financial situation. Whether you’re interested in learning more about mortgage options for those who are self-employed or want to see if a jumbo loan is the right loan for you, our team of professionals is here to help! Contact us today and we’ll begin to find you the perfect loan for your dream home.

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