For many individuals and families, owning a home is a lifelong dream. However, with rising real estate prices, some may find themselves seeking financing beyond the conforming loan limit. In this instance, you’d need to apply for a jumbo loan.
What is a jumbo loan?
So, what exactly is a jumbo loan in Rhode Island? It’s a mortgage loan that allows homebuyers to finance a property that exceeds the conforming loan limit set by the FHFA. In simpler terms, a jumbo loan is a specialized mortgage that enables you to borrow more money than you would be able to with a conventional loan. These loans are typically used to finance high-end or luxury properties in areas with high home prices, like Newport.
If you’re considering purchasing a home that requires financing beyond the conforming loan limit (CLL), then you’ll need to apply for a jumbo loan. Because of the larger loan amounts, jumbo loans typically carry stricter requirements and higher interest rates than conforming loans. Lenders may require a higher down payment, a lower debt-to-income ratio, and a stronger credit score to qualify for a jumbo loan in Rhode Island.
What is the jumbo loan limit in Rhode Island?
In Rhode Island, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Providence County is $726,200, so if the loan amount needed is even one dollar more than this amount, it’s considered a jumbo loan.
Keep in mind that the loan amount is what determines whether or not you’ll need a jumbo loan, not the home price. So, if you were to put $100,000 down on a $780,000 home in Providence County, the loan would be $680,000, 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 Rhode Island, check out this FHFA map.
What are the requirements for a jumbo loan in Rhode Island?
As previously mentioned, the requirements for a jumbo loan are much more stringent than 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: In order to qualify for a jumbo loan, most lenders will require a credit score of 720 or higher. While some lenders may be more lenient and accept a score as low as 660, a score below this threshold is generally not accepted. In contrast, a credit score as low as 620 could suffice for a conforming loan with some lenders.
Larger down payment: Jumbo loans typically require larger down payments than conventional loans. While the exact amount varies depending on the lender and the borrower’s financial situation, down payment requirements for jumbo loans can be as high as 20% or more. That said, some lenders may offer jumbo loans with down payments as low as 10%, provided the borrower meets certain credit and income requirements.
More assets: To qualify for a jumbo loan, lenders require borrowers to demonstrate that they have sufficient liquid assets or savings to cover at least one year of loan payments. The exact amount of assets needed can vary depending on the lender and the size of the loan, but having more assets can increase the chances of approval and potentially lead to better terms and interest rates.
Lower debt-to-income ratio (DTI): Mortgage lenders typically require a debt-to-income ratio (DTI) of under 43% for jumbo loan borrowers, although a DTI closer to 36% is preferred. This ratio is calculated by dividing the sum of all monthly debt payments by the borrower’s gross monthly income. A lower DTI indicates a stronger ability to repay the loan and can help applicants secure more favorable terms and rates. It’s important for Rhode Island borrowers seeking a jumbo mortgage to have a clear understanding of their DTI and take steps to improve it if necessary.
Additional home appraisals: A home appraisal is required whenever a homebuyer receives financing for their home purchase. However, for jumbo loans, lenders may require an additional appraisal. In areas with limited comparable property sales, this appraisal can be more expensive than in places with higher sales rates.