Susan Fung's Blog
A jumbo mortgage refers to a high-priced loan, usually meant for a luxury property. And while this loan may have once been reserved for the millionaire investors of the world, it may not be as exclusive as you think. If you're interested in what it takes to apply, it helps to understand how they work and who the best candidates are.
A Moving Target
To be considered for a jumbo loan, it must be above a certain minimum. However, this amount will differ based on where you purchase your home. The minimum for a jumbo loan in Beverly Hills will be much higher than the minimum in Kansas City due to the discrepancies between median home prices. These values will rise and fall depending on the local economy and average property appraisals, so buyers will need to do a little research into their city's criteria.
Jumbo mortgages are available in a variety of options, similar to a conventional loan. Unsurprisingly, lenders tend to be a little pickier when it comes to who they approve and who they reject. A single application may go through several underwriters to arrive at the final answer. They're looking for exceptionally high credit scores and equally low debt-to-income ratios.
It's the lender who dictates the exact terms of the loan, though historically, jumbo loans have had higher interest rates. However, it should be noted that this is not a hard-and-fast rule. Interest rates have been known to come down based on the caliber of people who apply. The more qualified applicants, the less overall risk the lender assumes.
In addition, the jumbo mortgage minimum down payment has been relaxed to just 5% to allow a more level playing field (especially for people in high-priced markets). Despite this though, most lenders are still looking for at least 15% on a jumbo loan. Shopping around can make it easier to find a lender with reasonable terms for a jumbo loan.
Structuring the Loan
Adjustable-rate jumbo loans are available, but they are not the ideal choice for homeowners unless they know they'll be selling in the very near future. To avoid paying more interest than necessary, experts recommend a fixed-rate over 15 years.
There may be a lot of fine print to a jumbo loan, but lenders are largely ensuring that the homeowner has enough in stable assets (e.g., property, savings, etc.) to cover their mortgage even if they fall on hard times. Knowing the terms can make it easier to prepare, apply, and be approved for the home of your dreams.
If you are thinking of refinancing your mortgage, there are so many options available to you that address your needs. Whether you want to do some home improvement projects or provide a down payment for another property refinancing can be a good option for you. There are many different options when it comes to home loans and refinancing. Below, you’ll find some of the most popular choices and what they mean for your mortgage and your finances.
A standard refinances requires that you have a certain amount of equity in your home. If you want to avoid Private Mortgage Insurance (PMI on the refinance, you need 20% equity in the home. Different lenders have different requirements for the amount of equity that you need in order to do this primary refinancing of your home loan. Keep in mind that a good credit score is also a requirement to do this type of loan.
Refinancing With Cash Out
This option is great when you need to take some of the equity out of your home. This way, you can get some of the equity out of your home without selling the house. This way, you’re able to refinance the mortgage, get a good loan term that’s affordable, and borrow a part of the equity you have built up in your home.
You can use the cash that you take out for just about anything you need including college, home renovations, business start-up costs, or to consolidate other debt you have. The only drawback is that you’re not able to borrow 100% of your equity. Usually, the highest percentage you’re eligible to borrow is 80%. The amount is based on both the equity you have built up in your home along with your income. Also, keep in mind that after you take out one of these loans, the amount of equity you have in your home decreases.
Short refinances may not be offered by all lenders. If you don’t qualify for a HARP loan or standard, refinance this could be a good option for you. If you hope to avoid foreclosure and are struggling to pay your mortgage each month, your lender may agree to the terms of this type of loan. The loan is in effect is a combination of a short sale and a refinance. The lender agrees to pay the existing mortgage off. The loan s replaced with a new mortgage. Beware that if you choose this option, your credit score may go down significantly. If you’re able to keep up with the new mortgage payments, you’ll be able to repair your credit score over time.
You may have heard the term “escrow” in your experience with real estate. You might know it’s an account, but what exactly does it do for you as a buyer? An escrow account is what your lender uses to make payments on things like property taxes, insurance, and more. The lender collects your monthly mortgage payment, and part of that cash goes into an escrow account.
This type of account is an excellent option for homeowners because your bills relating to being a homeowner will all be paid without you having to do anything. It makes budgeting a breeze because there aren’t any complicated calculations involved. Every month, your lender collects 1/12 of the estimated tax bill and insurance cost for the home. The rest of your mortgage payment covers the principal and interest on the loan of the house.
Are Escrow Accounts Mandatory?
You’ll find that most lenders require you to have an escrow account. The purpose of the account is to keep the home safe as collateral for the loan. The bank has an interest in the proper insurance behind the property. The taxes also need to be paid on time in order to keep the property in good standing. If the taxes aren’t paid, a tax lien will be placed against the house.
Everything In One Place
You’ll receive an annual statement from your lender that will show you how much money was collected and placed in your escrow account. Escrow payments often change because insurance premiums and taxes tend to change quite frequently. The amount being put into escrow may change a few times throughout the year. The lender keeps track of all this for you, saving you some time.
Bills That Need To Be Paid
Whether you have an escrow account or not the bills that are included must be paid one way or another. It’s a good idea to speak with your lender before you buy a home to find out that bank’s procedures around these insurance and tax payments. Property tax and home insurance are items that you’ll need to budget for regardless of how your lender does things. An escrow account can be much more convenient for many buyers.
Escrow is just another one of the many essential terms that you’ll come across as a homebuyer. Knowing the advantages and purpose of the account helps you to be informed as you dive into the home buying process.
Bad credit history can get in the way of getting approved for a loan. It may seem like a stretch to try and get lousy credit away from your credit score, but it is possible.
The 5 ways to get rid of bad credit
1. You should take note of the delinquency date. Credit bureaus often update on the years of delinquency. However, some credit bureaus are also not as open as they would like them to be and they are not as up to date. If you are in a bad credit situation, you should take note of the delinquency date to help you compute for the right period of the seven-year credit report clock.
2. Confirm the delinquency date of sold off debt. In layman’s terms, we call this one the balance transfer. The seven-year credit report clock begins on the day of the actual delinquency from the original creditor and not any other date. If you see a new time that is later the original one, you can report it.
3. Get all of the reports and find out what you are missing. You need to know the stories that give you a bad credit rating and what aspects they have factored in to provide you with that rating. Once you find out which one of the credit entities is listing the bad debt, you can contact them and dispute the debt that you think should no longer be in your account. So you can find out how to contact them, your credit report will include contact information of the bureau and instructions on how you can file for a dispute.
4. Send a letter to the authorities such as the reporting creditor and the credit bureaus. Let them know about your concern and make a request on how they can facilitate o removal of bad credit.
5. Contact a professional. You should contact a professional who can help you with the situation. It can be hard to understand the Fair Credit Reporting Act and only an expert can fully support you with it. Always keep in mind that a professional is there to lend a helping hand.
You always try to talk to a credit professional to help you get rid of bad credit. Securing a mortgage is a long process if you have a low credit score, but it is not impossible. Follow the steps and contact a professional to help you with your finances.
If you plan to pursue a home in the near future, there is no need to wait to get a mortgage. Because if you enter the housing market with a mortgage in hand, you'll know exactly how much you can spend to acquire your dream house. As a result, you'll be able to map out your home search based on your property buying budget.
There are many things you can do to ensure you can get a great mortgage prior to launching a house search. These include:
1. Learn About Your Mortgage Options
Banks and credit unions offers a wide range of mortgage options. If you meet with these financial institutions, you can learn about all of the mortgage options at your disposal.
As you assess your mortgage options, it is crucial to weigh the pros and cons of each option. That way, you can make an informed decision about a mortgage and decide which option will serve you well in the years to come.
2. Ask Mortgage Questions
If you are uncertain about what differentiates one mortgage option from another, it is important to remember you are not alone. Fortunately, you can ask mortgage questions to home financing professionals to determine which mortgage option is right for you.
Banks and credit unions employ friendly, knowledgeable home financing specialists who are ready to respond to your mortgage queries. Thus, if you discuss your mortgage concerns with home financing specialists, you can get the guidance you need to choose the best mortgage based on your individual needs.
3. Improve Your Credit Score
Your credit score may have far-flung effects on your ability to get pre-approved for a mortgage. However, if you analyze your credit score, you can determine if you need to take steps to improve this score before you apply for a mortgage.
You are entitled to a free copy of your credit report annually from each of the three credit reporting agencies (Equifax, Experian and TransUnion). Take advantage of this complimentary perk, and you can analyze your credit score at your convenience.
If you have outstanding debt on your credit report, you may want to pay this off as soon as possible. Remember, the sooner you pay off outstanding debt, the sooner you can bolster your credit score.
In addition, if you identify any errors on your credit report, notify the agency that provided the report immediately. This will allow you to correct any credit report mistakes before you submit a mortgage application.
As you get set to apply for a mortgage and conduct a home search, you may want to hire a real estate agent too. A real estate agent can provide expert guidance as you pursue your dream residence. He or she will help you find a house that matches your budget, attend home showings and much more.
Ready to launch a comprehensive home search? Get pre-approved for a mortgage, and you can take the first step to establish a budget for the homebuying journey.