When it comes to living in a high-cost area like Seattle, a conforming loan isn't always an option. The average price for a home in Seattle is $777,000. This average is subject to fluctuations throughout the year as well.
This means you might need to consider a Seattle jumbo mortgage to purchase a new home. While jumbo mortgages are helpful for these high-cost areas, it's also easy to fall into troubles when it comes to qualifying.
With a jumbo loan, you need an excellent credit score, a good income record, and minimum current debt. If you think you meet these qualifications, there are still some mistakes you want to avoid. Avoiding these mistakes will ensure you get the best loan option for you.
What Is a Jumbo Mortgage?
A Seattle jumbo loan is any mortgage loan for an amount above the standards for conforming loans. These standards are set by Fannie Mae and Freddie Mac standards.
Home loans that cost more than these standards are considered non-conforming. This means they have a different set of standard qualifications to get accepted.
In most areas, the maximum price for a conforming loan is less than $484,350. In high-cost areas, this limit is $726,525. A jumbo loan helps people purchase in areas where the average price for a home is more than this conforming limit.
If you want to qualify for a jumbo loan, you need to show an ability to pay the loan back. This means the qualifications are more stringent for a jumbo loan than for a conforming loan. These restrictions can cause trouble for you if you're not careful.
Mistakes to Avoid with a Seattle Jumbo Mortgage
If you're trying to qualify for a jumbo loan, you need to understand what these qualifications are. You also need to make sure you have the means to cover the higher purchasing costs in areas like Seattle.
There are 10 common mistakes that people fall into when it comes to seeking a jumbo loan. Understanding these mistakes will help you avoid them during your loan search.
1. Missing Documentation
To qualify for jumbo mortgage loans, you need to prove you have the financial health to pay back the loan. This requires providing plenty of financial documentation. With a jumbo loan, you will need more qualifying documentation than other loans.
To make the application process easier, you need to have all this documentation ready to present. This includes
- Tax returns for the past 2 years.
- W-2 or other wage documents.
- Bank statements.
- Info on all investments.
- Savings statements.
Make sure you have documentation for any income you have ready to go. This might seem invasive, but a jumbo loan is a higher risk. This means the lender needs to ensure it's a sound investment on their part.
2. Not Checking Your Credit Score
The minimum credit score for a jumbo loan is 680. Many lenders will look for scores in the 700 to 720 range before accepting an application with great rates, though. This means it's important for you to know what that credit score looks like.
You need to check your credit scores before you think about applying. Check for any mistakes that are bringing your score down. Make sure you check all the major credit reporting agencies to get a well-rounded view of your current score.
3. Improper Fund Allocation
A mistake people make with any type of loan is allocating too much of their income towards the purchase of a home. You should never allocate the bulk of your income towards a home loan of any kind.
A good rule of thumb is to allocate less than 30% of your total pre-tax income towards a home loan. This is especially important when it comes to a jumbo loan. Allocating more makes it more difficult to meet other financial demands in your life.
4. High Debt-to-Income Ratios
Lenders are reluctant to provide a jumbo loan to someone with a large debt load. Before you apply for jumbo mortgage loans, it's important to check your current debt-to-income ratio.
The debt-to-income ratio is a comparison of your monthly debt against your pretax income. If this ratio is higher than 45%, many lenders will refuse your application. More debt creates the appearance of poor financial health.
5. Not Considering All the Costs
Remember, the house payment is only one aspect of the purchase cost. People often forget that owning a home makes you financially responsible for maintenance and repair costs. You're also responsible for homeowners insurance.
Make sure you consider these costs when deciding on a loan. You need to put some money back for these surprise costs. Make sure you pick a loan that will allow you to save money towards these other purchasing costs.
6. Skimping on the Down Payment
A good down payment on the loan will help reduce the monthly payments and fees on a jumbo loan. Lenders will loan anywhere from 60% to 95% of the value of the house on a jumbo loan.
The more they loan, the higher your monthly payments are. Make sure you have enough to pay at least a 20% down payment on the loan to ensure you will have the easiest process through underwriting and your broker can shop your rate at the most (pricing) aggressive lenders. This will also ensure you can pay the monthly jumbo loan mortgage rates.
A good down payment will also lower your overall interest rates. This means more of your monthly payment goes towards paying the loan than the interest. Keep in mind, with a jumbo mortgage, you might want to pay more than 20% down.
7. Insufficient Savings
Lenders consider your savings when you apply for jumbo mortgages. In fact, many lenders require that you have some savings in place in case of emergencies.
If you are a first time buyer, a jumbo mortgage lender will often require that you have at least 9 total payments in savings (asset accounts are typically taken at 55% of face value). This ensures that you can still make payments if you lose a job or go through a financial emergency.
Savings are also about your protection. If you have funds available for emergencies you're less likely to lose your home if your finances struggle for a season.
8. Ignoring Interest Rates
Every lender charges different interest rates on a loan. These rates are based on many factors
- Your down payment
- The overall amount you're borrowing
- Your credit score
- Industry requirements
- Amount of cash you have in reserves
These rates are also based on the individual lender's standards. It's important to pay attention to these interest rates for each lender you check out. For instance, a lender that offers to loan less on the value of your home may also charge lower interest rates on that loan.
Compare the interest rates and the overall payment to make the best decision for your situation. This comparison will help you determine which option will cost less long-term.
9. Going with the First Option
The loan requirements are different for each lender. For the best rates on a jumbo mortgage, you need to shop around; brokers are an excellent idea since they shop the lenders for you. Don't just go with the first lender or bank you find to say yes.
Check out the requirements for several lenders. Compare their interest rates. Find the lender with the requirements that fit your situation and needs.
This also means checking on the reputation of the lenders you're considering. There are still shady lenders out there. You want to avoid these institutions.
10. Giving Up
Just because one lender rejects your loan doesn't mean you can't qualify for a jumbo mortgage. Remember, each lender has slightly different qualification requirements.
Often people will give up after one rejection. The problem is, another lender may have accepted the loan application. If you know you have the means to pay back the loan, try with other lenders.
The Bottom Line
If you want to apply for Seattle jumbo mortgage, you need to prepare. Lenders are looking for people with excellent credit scores. They're looking for people that can pay back the loan on time.
Make sure you can prove you have the income and assets to pay off your jumbo mortgage. Also, make sure you're not already carrying a large debt load. A healthy financial situation is key to receiving a larger loan amount.
Make sure you're ready to take on this new debt as well. Be prepared with a good down payment and plenty of savings (down payments are also a reflection, to the lender, of your ability to save excess money each month). Preparing for a jumbo loan is as much about protecting your assets as it is about qualifying with a lender.
Finding the Right Loan for You
If you're looking for a Seattle jumbo mortgage, you want to find a broker with a good reputation for accepting applications. You also want to make sure they have a good reputation for caring about their clients. You want a lender that's honest about your financial ability to pay them back.
A good lender will help you look at all your loan options. Remember, there's no one right way to purchase a home. You have options and you deserve to know what they are.
If you're ready to consider your loan options, it's time to contact a broker that can help you make the right choice. Contact us to find out what that right option is for you.