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    Applying For A Jumbo Loan With A Terrible Credit Score

    jumbo loan

    Despite the economic uncertainties related to the COVID-19 outbreak, tighter lending requirements mortgage applications are still at healthy levels. If you’re thinking of buying a home but are worried about affordability, you may want to consider a jumbo loan.

    In this article, we’ll take a look at this innovative type of mortgage and give you some tips on how to apply with bad credit.

    The Importance Of Your Income Over Your Credit Score       

    2020 has seen a rapid change in economic conditions around the world, and the US is no exception. The unemployment rate has risen from 3.6% in January to 11.1% in June. Lenders are becoming increasingly picky about job stability and income when they assess mortgage applications.

    • At a time when many Americans are losing their jobs and applying for credit to pay their expenses, credit scores are no longer the single most important factor in mortgage decisions 
    • A regular income and sufficient savings to cover mortgage payments will serve you well as a home loan applicant, even if your FICO score is a tad below 700
    • Lenders are cutting back on credit to self-employed people and part-time workers. However, if you have regular employment income, you still stand a good chance of being approved
    • This good news even extends to jumbo mortgages that allow you to borrow more than the average upper limit set by the Federal Housing Finance Agency for your area 

    How Lenders Pull Your Score            

    Income may be the most important factor in mortgage approvals right now, but your credit score still plays a major role in determining the outcome of your application. Here’s what happens when a lender checks your credit. 

    • Your credit score is calculated by FICO (the Fair Isaac Corporation). Alternatively, some lenders also use VantageScore which is provided by TransUnion. Both of these scores range between 300 and 850, and the higher your score the better
    • When you apply for a mortgage, your lender will consult your FICO numbers and possibly your VantageScore. They’ll also request a full credit report from the three main credit bureaus: Experian, TransUnion, and Equifax
    • This request for a credit report is called a hard credit check or hard pull. It’ll cause your credit score to drop by a few points but your numbers should recover in the short term. Soft credit checks, like those carried out by lenders, don’t affect your score 
    • Based on the result of this credit check, your lender will decide whether you’re likely to manage your mortgage payments sufficiently. If their decision is favorable, you’ll be approved and your home purchase can proceed 

    Improving Your Credit Score             

    Relying on your income alone to secure a jumbo mortgage is possible, but it’s also risky. Improving your credit score will increase your chances of a successful application and the good news is that it’s easy to do. All you need is time, discipline, and a balanced monthly budget. Here’s how to raise your numbers.

    • Make all your debt payments on time. This is one of the single most important things you can do to increase your FICO and VantageScore. Payment history is the most important factor in your credit score, and you’ll be penalized for late installments
    • Keep your card balances low. Maxed out credit cards cause your credit utilization (the amount you owe divided by your available balance) to shoot up. You’ll want to keep this number under 30%. That means a maximum of $1,500 owed on a card with a $5,000 limit
    • Don’t close your accounts. Credit history counts toward your score too, and the best way to benefit from it is to manage your accounts well, keep your balances down and keep them open in good standing for as long as possible
    • Budget effectively. To make monthly payments on time and rely less on your credit cards, you’ll need a monthly balance that’s big on income and low on expenses. The surplus you create by cutting expenses can be used to pay down your credit card debt and cover the installments on any loans you may have 

    Conclusion

    Despite the current economic challenges facing America, it’s more than possible to apply successfully for a mortgage, and that includes jumbo loans. 

    With the unemployment situation making income a bigger factor in mortgage approvals than your credit score alone, you may be able to qualify for financing even with a FICO score under 700. However, it’s always a good idea to boost your score using the tips above to give yourself an extra edge when you apply.