Looking to finance larger loan size? If you plan on being in the market for a mortgage loan $417,000 or larger, your credit score along with your equity will play an important role in your ability to get approved for a jumbo sized home loan. What you’ll need to know if you’re looking for a mortgage over $417,000 in most counties throughout the United States…
Your loan is classified as either a Conforming or Jumbo. Here’s the separator… the conforming loan limit in most counties is $417,000. This is the usual magic lending number needed procure the most lucrative terms and financing available on residential mortgages. If your loan exceeds this amount even by as little as one dollar your loan is automatically considered to be what’s called the Conforming High Balance also sometimes called the Super Conforming. A Conforming High Balance mortgage is the maximum loan limit on a per county basis that is still backed by Fannie Mae and Freddie Mac. Mortgage aggregators, Fannie Mae and Freddie Mac purchase loans from lender up to the Conforming Loan Limit in whatever county the limit is set for. For example in Sonoma County, the maximum conforming loan limit is $520,950. Any amount over this (for a single family residence) make the loan jumbo, subject to more lender examination.
Breaking Down The Loan Sizes By Type
Loans ≤ $417,000 considered Conforming Loans (most widely popular and available with less restrictive lending requirements)
Loans > $417,000 through the maximum Conforming Loan Limit (usually set at $625,500) in which county is located are Conforming High Balance Loans where underwriting is still slightly less restrictive, but would does require more equity.
Loans > $625,500 become Jumbos with stronger lender examination focusing on ability to repay and income requirements.
Note: each county throughout the United States does have a separate Conforming High Balance loan limit so if you desired loan amount exceeds $417, but is less than $625,500, you’ll need 10% equity.
How The Credit Score Dynamic Changes Based On Loan Size
An individual, with a credit score at 620 is going to have a more challenging time seeking a bigger loan size even at $417,000, though not impossible, do plan on more hoops to jump through and here’s why. Lenders still use FICO, the scoring system fair developed by Fair, Isaac and Company fire to determine the future likelihood of default within the next 90 days.
That’s why a lender bases so much of their credit decision based upon the credit score because the credit score is the biggest determinant of whether or not this borrower is actually going to make their payment on time, moreover that they have good character. Of course, each borrower’s individual circumstances vary and the individual circumstances is not necessarily, the best barometer of someone’s character especially considering the aftermath of the recession. Lenders, aware of this, look for patterns of payment history as whole as well.
If your middle credit score is in the 620 range
Then you’ll need at least 5% equity on a loan size to $417,000
If your middle credit score is in the 620 range and you’re looking for a loan larger than $417,000
Then you will need at least 10% equity up to the maximum loan limit in your county in which the property is located
→Mortgage Tip: if you plan to be taking out a jumbo mortgage, depending on the amount sought, you’ll need at least a 680 score.
If middle credit score is 680 and you’re looking for a mortgage up to $800,000
Then you’ll need it least 25% equity in the property in which you are financing
If you plan to be financing a mortgage over $800k through $1 million
Then you’ll need at least 30% equity along with 680 the middle credit score
If your loan size exceeds $1 million-$2 million
Then your credit score should be at least 700 with 30% equity
Should your desired loan amount exceed 2 million you’ll need a 720 credit score with the same 30% equity requirement.
As good rule of thumb, plan on for every increase by $500,000 on a jumbo sized mortgage you’ll need 40 points more credit score as you move up the jumbo scale. The reason the credit score requirement rises in relationship to the maximum loan size is that traditionally the bigger size mortgage loans have taken larger losses in recent years and lenders while currently to make them, only want financially strong borrowers who have a lower likelihood of payment default.
Tips Obtaining A Big Mortgage:
- Focus on a putting in a large down payment and/or more home-equity if refinancing
- Work on your credit score… paying down credit cards to 30% of the total allowable line can increase your score dramatically in as little as 30 days
- Payoff any and all consumer debts as much as possible as these liabilities, even though they may be small erode income
- If self-employed, show maximum income, no tax cheats, no shortcuts, bear the full picture… doing so may increase your tax liability (consult with a qualified tax professional), but qualifying for more will be within reach
- Avoid rental losses if possible as rental losses count as a liability against your income if you own rentals
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