At one time, jumbo loans were only for luxury homes and high-priced commercial real estate. Now, they are commonplace in places like California and Florida for buying regular homes because the median price for houses is higher than the 2011 conforming loan limit of $417,000 set by Fannie Mae and Freddie Mac. In most cases jumbo mortgage rates are offered at about 1% higher than conforming and FHA rates.
Jumbo loans are considered non-conforming loans, or unconventional loans, because they are higher than the conforming loan limit. A bad credit mortgage, even if it's within the conforming loan limits, is also an unconventional loan because the borrowers' credit scores don't conform to standard underwriting guidelines.
As you know, a major element lenders look at when qualifying borrowers for loans is their credit. Lenders evaluate borrowers' credit by pulling their FICO credit scores. FICO scores are now the mortgage industry standard for originating mortgage loans, including jumbo loans. Fair Isaac estimates that 75% of all mortgage originations now involve FICO credit scores.
Bad credit jumbo home loans are typically for people with credit scores under 620, but there are other qualifying factors that may require someone with higher credit scores to end up with a sub-prime jumbo loan. For example, if you're self-employed or a sole proprietor business owner with hard-to-prove income, you could end up only qualifying for non-conforming bad credit mortgages.
Income is another major deciding factor on whether or not you qualify for the loan. Assets are also considered in a loan decision. Thus, you may or may not be able to qualify for a standard loan even if your scores are high enough. So, if you really like the house, but can only qualify for a bad credit jumbo home mortgage, try getting an interest only loan. Use a payment option ARM (adjustable rate mortgage) only as a last resort. Then, you could refinance (re-fi) later on for better rates once your scores and/or income situation improve.
If you're already a homeowner, quick way to raise your credit scores is by paying off your high-interest credit cards and other debts with a cash out jumbo re-fi or 2nd mortgage. But, remember to keep the credit card accounts open or your credit scores could drop. But, don't use the cards either, or you'll be further in debt. The whole idea is to lower your debt ratio, which will raise your scores. Paying off your debts combined with the good payment history you build on your mortgage(s) could pave the way to a refinance at lowered interest rates later on. And, refinancing jumbo loans is not as hard as it used to be. Ask your lender for details
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