Jumbo loans, loans whose loan amounts exceed local conforming loan limits, are approved in much the same manner as most any other loan program. There are some basic differences and we’ll review them for you but overall, it’s a very similar process. Jumbo loans typically ask for higher credit scores compared to other loan programs, for example. While a typical FHA loan can accept credit scores as low as 580 and even as low as 500 with a larger down payment, a jumbo loan might ask for a credit score of at least 720 or even higher. Jumbo loan programs can differ depending upon the investor, but most ask for the minimum score to be around 720 or 740. Debt ratios, the monthly payment compared to gross monthly income can be a little more stringent as well. Knowing in advance what the lender will need from you will help make for a smooth closing.
Early on, you’ll want to get a handle on what your own credit scores look like. While there are different sites where consumers can get their scores, they won’t be the ones that lenders use. Lenders use FICO scores and while these scores will be similar to others, there typically will be a difference. If you’re not sure what your scores are or think your scores might not be in the low 700 range, I’ll pull your FICO scores for you so you’ll know exactly where you stand. Letting me review your credit report and credit scores in advance, well before you begin shopping for a home is key.
As it relates to employment and income, jumbo loan programs can cater more toward a self-employed borrower earning a higher income. Someone that is self-employed will have income verified in a slightly different manner than someone getting a paycheck on the 1st and 15th of every month from the employer. A self-employed borrower typically gets paid when their clients pay and there is no “regular” pay period. Pay comes when clients pay. In lieu of paycheck stubs, lenders will review the last two years of both personal and business income tax returns along with a year-to-date profit and loss statement.
There will also be a form called the 4506-T needing to be signed. This form gives the lender permission to request federal tax transcripts. The lender will then compare the information on the transcripts with the numbers on the tax returns submitted to the lender. Lenders will then average all the reported income together to arrive at a qualifying income used for the approval. Income from one year to the next should also be relatively the same. When you submit your information to me, I will calculate your qualifying income for you.
All borrowers will need to provide a verified source of funds to close, typically this means copies of recent bank statements. Someone who works for an employer will have statements that show regular deposits on or around payday. If someone gets paid on the 1st and 15th those deposits should be reflected on the applicant’s bank statements. Self-employed borrowers providing bank statements typically won’t show regular deposits but instead deposits on different dates as clients pay their invoices. By providing at least three months of bank statements, we can show consistent income as well as sufficient funds to close. Funds to close will be the current balances in all the applicant’s accounts.
Finally, it’s extremely important to follow up when we ask for additional information. Any delays on the borrower’s part only delays the scheduled closing date. If something is asked for and not provided, it will slow down the approval process. Submitted loans will always have loan “conditions.” Loan conditions are part of an early approval that lets the applicant know the loan application is pre-approved as long as the additional items requested are provided and reviewed. There are conditions that need to be taken care of before loan papers can be drawn and conditions that are not so important that can be provided after papers have been signed. Once these post-signing conditions are provided and approved, the loan can be funded. The basic premise for a smooth jumbo closing is communication. If you have any questions are aren’t sure about what is being asked for, a simple phone call can clear things up.