When the size of your loan is too big to fit into the underwriting box of Fannie Mae or Freddie Mac, your lender is likely to try to match your application up against the guidelines of a jumbo home loan investor instead.
However, this could be an even more complicated process than it already is if your lender doesn’t ask you a few common questions upfront to help ensure the accuracy of your eligibility with these types of investors.
Here are seven quick tips as you start the jumbo application process with your lender:
1. Do you have any interest-only mortgages on your credit report?
If any open mortgages on your credit report are interest- only, you could be required to qualify for them at a full principal and interest payment and over a 240-month amortization period.
2. Do you have any open Home Equity Lines of Credit (HELOCs)? If there are any open HELOCs on your credit report, they may have to be qualified with a payment of 1 percent of the full loan amount.
If the HELOC has a zero balance, your lender would probably still use the 1 percent unless you have evidence the account is closed, not frozen or suspended.
3. Do you have any losses reported on your IRS tax form 1040, page number one, line number 13?
Line 13 of the 1040 reflects capital gains/losses carried forward from your Schedule D.
Although there’s a maximum amount that can be reported as a negative on this line, it’s not considered the actual loss and your lender should evaluate your Schedule D to determine the actual amount of any loss to be deducted from your income.
4. If you are receiving rental income, do you have copies of current expired leases?
This proof is sometimes required when using rental income to qualify. In states that allow month-to-month leases, if the lease is expired and has reverted to month-to-month, your lender might also need evidence of receipt of the current rents being paid to you from the tenant listed on the lease agreement.
5. If you are self-employed, has each business you own been operating for at least 24 months and reporting on your tax returns as such?
Self-employed borrowers should have a 24-month history of self-employment. The 24-month history is usually needed for each business to use positive income from it. For instance, not just reported on 2 years of tax returns, but a full 24-month history.
6. Are your reserves from non-liquid sources such as IRA, 401(k), stocks, bonds, mutual funds?
Some jumbo investors require 50 percent of your reserves to be in liquid funds; others do not.
7. Are you a first-time home buyer with no ownership in real estate in the last three years and have lived rent-free in the past 24 months?
Sometimes, your housing payment history must be documented for the last 24 consecutive current months.
If at any time during the last 24 months you have lived rent free, then your file could be ineligible with certain jumbo investors.