The Jumbo Loan Approval Process
Lenders divide loans into two categories- conforming and jumbo. A conforming loan is one where the loan amount doesn’t exceed $424,100. A jumbo loan is one that exceeds that amount. Each year in the fall, the Federal Housing Finance Agency, or FHFA, sets the new loan limits for the coming year after reviewing national home value data from the previous year. This process used to be done entirely by Fannie Mae and Freddie Mac but as a result of the Housing and Economic Recovery Act of 2008, FHFA now sets the limits. In certain higher cost areas, the conforming loan limit can be greater than the $424,100 figure. In Florida, two counties have slightly higher loan limits, Collier and Monroe.
Jumbo loans are approved using similar guidelines for conforming loans. In practice however, there are actually two approvals during the course of processing a jumbo loan application. One approval for the borrowers and one for the property.
Borrowers must qualify based upon credit, income and sufficient funds to close. Applicants should be able to demonstrate they have at least two years of employment which can be accomplished by providing W2 forms from the previous two years from all employers. As well, borrowers will provide copies of their most recent pay check stubs covering a 30 day period. For those who are self-employed or receive steady income from a source outside of employment, two years of federal income tax returns are required, both personal and business.
Jumbo loans ask for minimum credit scores which can vary based upon the type of jumbo loan being applied for. When requesting a credit report, the lender also asks for credit scores. There are three main credit repositories, Experian, Equifax and TransUnion and each provide its own score. These scores will be similar because they use the same algorithm. For example, the lender might receive scores of 741, 749 and 752. Lenders ignore the highest and lowest score and use the middle one for qualification purposes. To verify there are sufficient funds to close lenders will ask for copies of your latest bank and investment statements from the accounts being used for the down payment and closing costs.
As it relates to the property, lenders determine the condition of the property as well as its current market value based upon the results of an appraisal report. The appraiser will visit the property, take photos and measure the square footage of the home. Then, the appraiser lists at least three properties similar and near to the subject property that have recently sold and compared those selling prices to the value listed on the sales contract. Most often the value comes in at the value listed on the sales contract and sometimes a bit higher. If the value comes in lower than the sales price, the borrowers must make up the difference or renegotiate the price of the home.
Jumbo loan approvals aren’t really that much different than any other mortgage approval, the only differences really are the amount borrowed and the interest rate on the loan. Jumbo loan rates are typically higher compared to a conforming loan amount, but not by a lot. Check with your loan officer for current rates and compare.