Depending on where you live, whether its Cincinnati, Ohio or Portland, Oregon, median home prices can vary greatly from city to city. But what does not change is the difference between a conforming loan amount and a jumbo loan amount. As of January 2017 the maximum conforming loan limit was increased to $424,100 from $417,000, marking the first such increase since 2006. Simultaneously it also marked an increase in the jumbo loan market. Any loan amount above the $424,100 limit is labeled a jumbo loan in most locations through most the U.S. Some expensive locations in California, Florida, etc have conforming loan limits over $636,000. So, is there really any difference between a jumbo loan and a conforming loan approval process?
When a borrower submits a loan application lenders will process the loan in much the same manner whether it’s a jumbo or not. Lenders pull a credit report and request credit scores from each of the three main credit bureaus. Lenders will also verify employment by contacting the lender directly and confirming employee status, tenure and income. Lenders will also compare this information with the amounts that are shown on copies of their recent check stubs and review annual income information from the past two years using copies of W2 forms. For self-employed borrowers lenders will ask for the most recent federal income tax returns and average the income over the two year period arriving at a monthly amount. The approval process for a conforming and a jumbo loan also requires verification of enough funds in an account owned by the borrower to be used for a down payment and closing costs.
Yet while the approval process seems similar regardless of the loan amount there are differences. For example, interest rates for conforming loans will be slightly lower compared to a jumbo loan. For instance, if a conforming 30 year fixed rate is quoted for a borrower at 4.25% a jumbo rate might be 4.50-4.75% higher for the same 30 year term. While conforming loan programs range from fixed to adjustable to hybrids, most jumbo loan choices involve a hybrid loan with a mixture of fixed rates. Credit score requirements for a conforming loan are typically 620 or above while jumbo loans ask for a minimum score to be 680 when financing over 90% LTV. 700 credit required for 5% down Jumbos.
Property appraisals are required for any mortgage approval as the lender must verify the property (lender’s collateral) is marketable and similar to other homes in the area. With a conforming loan typically there is only one appraisal required. However, with a jumbo loan there may be two independent appraisals needed. For so-called “super jumbo” loans, those above $3 million, two appraisals are often the norm with many mortgage companies and banks.
When lenders review bank statements to verify sufficient funds to close they also look for an amount needed for cash reserves. Cash reserves are funds that remain in an account after the transaction has closed and defined as a months’ worth of mortgage payments including taxes and insurance. A conforming loan may require only two months’ worth of house payment reserves while a jumbo loan needs may need 4+ months of reserves.
While the overall approval process for conforming and jumbo loan requests are very similar these are the basic differences between the two loan types. Further, individual jumbo lenders can add their own underwriting criteria (called overlays) that may be different from other jumbo programs.
Jumbo Mortgage Source offers an array of Jumbo mortgage solutions with only 5% down payment. Fix rate, ARM, Piggy Back combo loans. Learn more about all the Jumbo purchase and Jumbo refinance requirements by clicking the highlighted links. Call us with questions 7 days a week at ph: 800-962-0677