First-Time Home Buyer Jumbo Loans: Tips and Requirements

Buying a home isn't as simple or intuitive as it used to be, especially with rising prices and an expanding array of financing options.

And if you're a first-time buyer just setting foot in this dynamic market, you may quickly find yourself in jumbo loan territory with more questions than you can find answers for.

Don't worry! We've put together a helpful resource that answers your most basic questions and gives you tips and tricks so you can make an informed decision on how to finance your dream home.

It's not as difficult as you might think.

Can a First-Time Buyer Get a Jumbo Loan?

The short and sweet answer is yes, you can get a jumbo loan if you're considered a first-time buyer (someone who hasn't owned a home in the past three years). But you should know a few things before you run off and apply.

The first is that there are no specialized programs designed for first-time buyers who seek out jumbo loans.

That means you won't get to take advantage of state and local agency incentives, such as low down payments, tax credits, covered closing costs, etc., like other first-timers.

Now that doesn't mean you can't get a low down payment jumbo loan, but it does mean that you'll have to meet particular requirements to qualify for that product.

Secondly, keep in mind that a jumbo loan is defined as any mortgage that exceeds the conforming loan limit set annually by the Federal Housing Finance Agency. That limit is adjusted each year and varies by county, with higher limits in designated high-cost areas such as Los Angeles, New York, and parts of South Florida. Because the limit changes annually, it's worth checking the FHFA's current figures before assuming you need jumbo financing. A loan amount that required jumbo financing a couple of years ago may now fall within the conforming limit for your area.

Finally, even though it's possible to obtain a jumbo loan as a first-time home buyer, you might find yourself with slightly different requirements than other jumbo loan borrowers.

It's important to note that each lender will have different underwriting guidelines. So make sure you research and shop around to find the lender that's best for you.

Is It Harder to Qualify for a Jumbo Loan vs. Traditional Loan as a First-Time Buyer?

This question is a bit more complicated to answer, but generally, first-time buyers can expect jumbo loans to be slightly harder to qualify for than conforming loans. Why?

Well, there are two main reasons: lender risk and the borrower's financial situation.

Lender Risk

In general, jumbo loans pose a higher risk to lenders than traditional conforming mortgages because they lack government backing and cannot be sold to Fannie Mae or Freddie Mac. That means lenders have more difficulty recouping their money if something happens.

This makes jumbo loans slightly harder to qualify for, period.

Borrower's Financial Situation

Borrowers seeking jumbo loans, regardless of their experience, must demonstrate strong financial stability to get approved. This typically includes having a reliable income, sufficient cash reserves, and a down payment that can range from roughly 5% to 20% depending on the lender.

This is where many first-time home buyers run into difficulties, which is why many traditional loan programs offer specialized assistance to address this hurdle, as mentioned above.

But jumbo loans generally don't have these programs. That means first-timers should be prepared to have a substantial amount on hand for a down payment, whether they pursue a standard 20% down payment or a 10% down jumbo loan. The exact amount depends on the loan size, so talk with a lender about what to expect for your target price range.

Bottom line: If you're not financially ready, you'll find qualifying for a jumbo loan more difficult.

What Are the Jumbo Loan Requirements for First-Time Buyers?

Getting a jumbo loan depends on the type you get and the lender's guidelines. For example, a 5% down jumbo loan will have stricter requirements than a 20% down loan.

Having said that, all borrowers are expected to meet several basic requirements, including:

• Proof of stable income: Borrowers need at least two years' worth of documentation (tax returns, W2s, pay stubs, bank statements, etc.) to prove their income.
• Healthy credit score: The minimum score for most jumbo loans is 680, though this varies by lender.
• Low debt-to-income ratio (DTI): Most lenders want to see a DTI of 45% or lower for first-time home buyers.
• Reasonable down payment: Typically, first-time buyers will need a minimum of 20%; however, some lenders will accept less if the borrower has a strong credit score and a low DTI.
• Sufficient cash reserves: While not every lender will require this, it's worth noting that some lenders want to see several months' worth of cash reserves, and the exact amount varies significantly by lender and loan size.

How to Improve the Odds of Securing a Jumbo Loan as a First-Time Buyer?

While getting a jumbo loan might not be as hard as you thought, here are some tips to make the process even easier:

• Maximize your credit score: Try to get your score as high as possible before applying by disputing incorrect information, paying your bills on time, and reducing debt.
• Bring your DTI down: While lenders will accept a DTI of 45%, they prefer to see DTIs of 36% or lower.
• Pad your down payment: Even if you want to try for a low down payment option, try to save up for more than you plan on putting down. This demonstrates financial responsibility and helps you if you need to show additional cash reserves.
• Research your options: Don't be afraid to shop around and compare lenders to get the best rates and terms.

Explore Your Jumbo Loan Options with MDL

At Modern Day Lending, we understand that taking out a large loan as a first-time home buyer can be intimidating and overwhelming, so our team strives to take the stress out of the whole process.

Whether you're looking for low down payment options, a jumbo construction loan, or don't know which type of jumbo loan is best for you, don't worry!

Our mortgage experts will work with you every step of the way to help you find the right product and loan size based on your credit, income, and finances.

Here's what you'll typically need to get started:

• A credit score meeting our minimum program requirements
• An acceptable debt-to-income ratio
• Proof of income for the past two years
• Personal asset statements covering the most recent two months
• A valid driver's license or other government-issued ID

If you're ready to take the first steps towards owning your dream home or want to explore your jumbo loan options, contact one of our mortgage experts today.