When it comes to purchasing a home, buyers may find it difficult to find financing beyond the conforming loan limit. In this instance, you may need to apply for a jumbo loan.
What is a jumbo loan?
A jumbo loan in Kentucky is a type of mortgage that is used to finance homes that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Oftentimes, this type of loan is necessary for high-end, luxury homes or homes located in expensive housing markets.
If the home you’re purchasing will require you to borrow more than the conforming loan limit (CLL), you’ll need to apply for a jumbo loan. However, keep in mind that jumbo loans come with higher interest rates and stricter requirements than conventional loans due to the larger loan amounts and risk associated with them. For instance, a larger down payment and a higher credit score may be required to qualify for a jumbo loan in Kentucky.
What is the jumbo loan limit in Kentucky?
In Kentucky, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Jefferson County is $726,200, so if the loan amount needed is even one dollar more than this amount, it’s considered a jumbo loan.
As a reminder, the loan amount is what determines whether or not you’ll need a jumbo loan, not the price of the home you’re buying. So, if you were to put $50,000 down on a $750,000 home in Louisville, the mortgage would be $700,000, which is under the conforming loan limit for this area. In this case, your loan wouldn’t be considered a jumbo loan.
To identify the conforming loan limits where you’re considering buying a home in Kentucky, check out this FHFA map.
What are the requirements for a jumbo loan in Kentucky?
As previously mentioned, the requirements for a jumbo loan are much more stringent than the requirements for a conforming loan. Each lender may have different requirements or processes, but below are the typical requirements for borrowers seeking a jumbo loan.
Higher credit score: When it comes to jumbo loans, lenders generally look for a credit score of 720 or above to qualify a borrower. While some lenders may accept a score as low as 660, this is typically the lowest score for qualification.
Larger down payment: Buying a high-priced home often requires a larger down payment from the buyer. Conforming loans may offer programs for down payments as low as 3%- 5%, but jumbo loans require a minimum down payment of 10%, with some lenders requiring up to 30%. If the homebuyer puts down less than 20%, they will likely need to pay for private mortgage insurance (PMI).
More assets: Jumbo loan borrowers are typically required to have additional assets. In particular, lenders may require borrowers to demonstrate sufficient liquid assets or savings to cover one year’s worth of loan payments.
Lower debt-to-income ratio (DTI): When applying for a jumbo loan, Kentucky lenders typically look for a borrower with a debt-to-income ratio (DTI) below 43%. Ideally, a DTI closer to 36% or lower is preferred. The DTI is calculated by dividing the sum of all monthly debt payments by gross monthly income. A lower DTI signifies a borrower’s ability to manage their current debt load while taking on additional mortgage payments. It also indicates greater financial stability and the ability to make on-time payments towards their jumbo loan.
Additional home appraisals: Your lender may require a second home appraisal for a jumbo loan, in addition to the standard appraisal, to get a second opinion on the property’s value. This is especially true in places with limited comparable property sales. The second appraisal helps lenders ensure that they are providing funds for a property that is worth the loan amount or more.