I wanted to do a video to show you a little bit about the complexities of getting a jumbo mortgage.
Complexities of a jumbo mortgage
A jumbo mortgage is an amount that’s over the conforming loan limit. I’ve got this map pulled up. It’s interesting to see the map of the country. There’s not that many areas in the whole country that have what’s considered a high balance loan limit. There is a conforming loan. That goes up to, if you can read the small print down here, $647,200.
There are different categories of loan size
So most of the counties in the country get a conforming loan up to $647,200. If you can read the fine print, there are even others that go over $647,000, up to 700,000. And there’s a few that go over $700,000, up to $970,000 and change. $970,800 to be exact. Let’s take Washington DC, for example. High-cost area. If you borrow $647,200 or under, it’s considered a conforming loan. Rates are a little lower. Guidelines are a little different. Probably little easier. If you borrow over the $647,200, up to $970,799, it’s a conforming high balance loan. Rates are little higher. Guidelines might be a little bit more complicated. And then if you borrow over $970,800, it’s a jumbo loan. Rates could be different. Guidelines, much more strict.
There are pages of guidelines for a jumbo mortgage
So that’s what I want to talk about today. Jumbo loans. Let’s say you’re in Washington DC, you want to buy a $1,500,000 home, put 20% down, and borrow $1,200,000. That’s a jumbo loan. You need to make sure your lender is incredibly thorough and educated and jumbo loan articulate. Because there’s a lot of guidelines. Pages and pages and pages. And unfortunately, some lenders will just kind of do a cursory, “Oh, your credit score is good, your debt ratios are good. It looks good to me.” And maybe even issue you a pre-approval letter based on that.
But it should take a lot longer and a lot more paperwork and a full underwriting to get a pre-approval letter for any loan, especially a jumbo loan. And I thought, “How do I want to convey this?”
So I thought, “I know. I’ll show everybody there’s something called AllRegs.” You’re not going to get access to it as a consumer. It’s an industry tool. We lenders sign up for it and pay a fee for it. But it tracks guidelines for different lenders. Now when I get somebody that calls me about a jumbo loan, first thing I do is I go to AllRegs. Here it is. I go in. There’s a lot of different lenders that we work with. AmeriHome, Bayview, Lakeview, Chase.
I happened to pick Chase Bank. Then I go down and pick their non-agency, which is another word for jumbo. Amortizing, fixed rate guidelines. Then you go over to this other screen here, and here’s all the guidelines. And these are topics and sub-topics. I mean, you’re already overwhelmed, right? Just looking at that. There’s requirements for appraisals, reserves requirements. If you’re relocating. Obviously qualifying ratios and debt ratios. Just a whole host of things.
And then when you click on a topic like reserves, then there’s all kinds of other data to read about. Some states might have different reserves requirements, loan to values. If you’ve got somebody that’s going 20% down or more, the reserve requirements are that they have six months of the monthly payment. That’s including taxes and insurance, so your mortgage payment and the taxes and insurance. You’re supposed to have six months of the monthly payment and cash reserve on top of your down payment and your closing costs. So let’s say your monthly payment’s $5,000 a month. You’ve gotta have another $30,000 in reserves to get loan approval.
But then wait! What does this mean? If any portion of the reserves are from a borrower’s retirement account? Well, now the reserve requirement gets up from six months to 12 months. So now I need 36 months of reserves, if any of it’s coming from the retirement account. Now, I happen to know that Chase Bank will allow all the reserves to come from a retirement account. And this isn’t the case for all lenders. Some lenders want your reserves to be cash. Some want a mix of cash and retirement accounts. Chase, I know, will allow all 12 months to come from your retirement account. But when you go back to the table of contents, it’s just overwhelming. The amount of data to intake and process. And it changes quite a bit.
Can’t I get a quick pre-approval?
So I really get frustrated when someone says, “I already talked to a lender, we had a five-minute phone call, I’m pre-approved.” Well, that’s really not going to be the case for any loan, but especially a jumbo loan. I don’t want to bore you on this video, because that’s not the intent of the video, to go over each and every guideline. But I can tell you, every time I get a jumbo loan client, I go through and I decide what lender might I be working with. I check all their guidelines. It’s an hour of reading. Nobody likes to do an hour of the reading in the middle of their day. It’s just not on the agenda, right?
But I know as a loan officer, I better do it. Because what happens a lot of times is people will over-promise and say, “Don’t worry. Don’t worry. You’re okay. Loan approved. Loan approved.” And then all the sudden, halfway through the transaction, there’s a guideline that they didn’t know about. Well, it’s because they were too lazy to do the homework and the research and the reading. Or take you through the full pre-approval process. Meaning, having an underwriter underwrite the loan, because it’s also the underwriter’s job, that’s their job. That’s their one job, is to know these guidelines and apply them to each client.
Jumbo mortgage – the guidelines seem endless
But on the front end of a transaction, when you’re just talking to a loan officer, you really want to make sure that they’ve done the homework and researched. Are there any, again, I won’t read through all of this with you but, are there any residual income requirements? What are the reserves requirements? Debt ratios? Minimum credit score? If you’ve got any other properties? Rental property? Second home? If you’re moving out of what used to be your primary residence and buying another one, all the reserves requirements change and go up. So now you need even more cash for what they call “retained property.”
So if you’ve got a second home and an investment property, and you’ve got a primary residence that maybe you plan to sell after you buy the new home? You’d better have reserves for all of it. Four homes. Your new primary residence, your primary residence that you’re moving out of. Even if you plan to sell it, you’re going to need reserves for it. Your second home, and your investment property. I could go on and on about the guidelines and the complexity and the minutia in getting a jumbo loan. Very complicated.
Ask your lender a lot of questions
You start getting into condominiums or multi-family property, duplex, triplex, fourplex. You can’t get a residential loan on five units and up, so I only mentioned duplex, triplex, and fourplex. I could go on and on and on. It is incredibly important that you ask your lender a lot of questions. Or make sure they’re instilling in you the confidence that they have asked you all the questions they need to ask you, And that your pre-approval is a real pre-approval, and that you’re really moving forward on a sound basis. I hope that helped. Thanks very much.