Fasten your seat belts — today we will be talking about luxury real estate in Illinois! Is it possible to get financing if you want to buy a house worth $1 million (maybe even more)? Yes, because for such loans, a Jumbo Loan comes to the rescue. So, what is a jumbo loan in Illinois and what is it for?
What is a Jumbo Loan Limit?
A Jumbo down payment loan is one that exceeds the allowable limits of the county. Its amount is determined by Fannie Mae and Freddie Mac — they buy most of the mortgages from banks and other large lenders. This frees up liquidity to lend more mortgages.
Let’s see how this works in practice. For example, if a loan exceeds $647,000 in most counties, then those organizations simply won’t purchase the loan.
What is a Jumbo Loan in Illinois
$726,200 is the loan limit in Illinois in 2023. Therefore, if you are thinking about buying luxury real estate, you should understand the specific limits of a large loan. The mortgage broker will need to match you with the most appropriate financing options for these unique circumstances.
Mortgage brokers and real estate agents can help potential homebuyers understand specific Jumbo Loan limits for their desired luxury property. In doing so, they guarantee that clients receive the most appropriate financing options for their unique circumstances.
Who needs Jumbo Loans?
As a rule, borrowers use such options with high income, high credit rating and the ability to pay a large down payment. Loans for luxury and expensive real estate will carry high interest rates and require stricter underwriting rules.
Pros and cons
So, how do you know that you really should take out a Jumbo Loan? Its main advantage is the ability to bypass the restrictions set by Fannie and Freddie. Such large sums always involve the choice or possession of expensive and special real estate — for which a large loan is required. For example, if you want to borrow $3 million against a $3.5 million home.
Pros
- Opportunity to get more financing than with a traditional mortgage loan
- Competitive interest rates
- Opportunity to buy a big house
Cons
- A higher credit score is required to qualify
- Need more annual income
- Must have a cash reserve to cover payments from 6 to 12 months
Who can apply for a Jumbo Loan in illinois?
Credit Score
For such a large loan, you will need a minimum score of 700, or even higher. Of course, this is much higher than the minimum for a regular loan from the state. But nevertheless, this is not something incredibly high and unattainable.
Down Payment
If the house is expensive, get ready to pay a lot, even if you take out a mortgage on it. As a rule, the initial payment is 20%. On average, this is about 200-400 thousand dollars.
DTI coefficient
The maximum debt-to-income ratio should be 45%.
Cash Reserves
In order to protect against unexpected expenses, you will need to confirm the availability of a certain amount. Which one depends on the lender, but on average it is a period of 6 to 24 months.
Closing costs per deal
The transaction costs will be significantly higher than when buying a conventional house.
Manual Underwriting
If most conventional loans are issued through a computer program, here it is done manually. A real person will look at your financial background, earnings and assess the ability to repay the loan.
There are several obstacles that borrowers may face if they want to get a large loan:
Higher Income
Obviously, if a person has a low income and many debts, even a high credit rating will not save them here. Generally, to qualify for a large loan, you will need a low debt-to-income ratio (DTI), which is a percentage of your monthly income that goes towards paying off debt.
Higher Credit Score
The requirements for a large loan will always be higher than for a regular one. On average, this is a rating of about 740. But there are different situations, so the rating can reach 660.
Big Savings
The down payment on a Jumbo Loan is usually 10-20% of the cost of housing. If we are talking about a house for several million, then you will need a large amount on hand just to qualify for funding. So, be prepared to show financial reserves or liquid assets to cover mortgage payments for 6 to 12 months.
Interest rates and payment terms for Jumbo Loans
These points can significantly affect the overall cost and availability of credit. Lenders such as Freddie Mac and Fannie Mae tend to charge high interest rates because of the high risk they take on a large mortgage. To reduce risk, lenders typically require a higher down payment — in Illinois, it can be as high as 20% of the cost.
Also, lenders may require borrowers to purchase mortgage insurance, which will add additional costs to monthly payments. Oddly, enough, money helps to avoid such situations. If the borrower shows high financial stability and is ready to make a large down payment, he will most likely receive a loan on good terms.
How to Successfully Apply for a Jumbo Loan in Illinois
Even if we are talking about such a large loan, planning and strategy are still important here. In Illinois, luxury real estate is not uncommon and is often in demand. Therefore, luxury homes here will sell for a higher price and require a minimum credit score of around 700.
Borrowers will also note your stable and high income, cash savings and financial history. To make sure that the client complies with underwriting rules for large loans. Let’s not forget that a large loan can also be taken to purchase luxury investment real estate in Illinois.
When applying for a large loan, most of the responsibility also falls on the mortgage broker. They must understand all the subtleties and features of applying for this type of loan. And also, find different options for large loans that are suitable for a particular financial situation.
Apply for a Jumbo loan in Illinois today
If your dream home does not fall under the relevant lending rules, a Jumbo loan may be a good alternative. It will suit buyers with a stable high income and large resources. This once again shows that absolutely for any case there is a financing option. At LBC Mortgage, we have experienced this first hand. In our work we place the main emphasis on an individual approach. Whatever your desires, we will help you to realize them. Sign up for a consultation to make your dream a reality!