Around two out of every three home loans issued in today’s mortgage marketplace are those underwritten to either Fannie Mae or Freddie Mac guidelines. These loans are referred to as “conforming” loans because they conform to Fannie and Freddie’s requirements.
One major requirement is the loan amount must be at or below the conforming loan limit. For most parts of the country, the conforming loan limit for 2020 is $510,400 for a single-family residence. Any amount over that is considered a “jumbo” loan unless the property location is a “high cost” area. When financing a higher-end home and taking out a jumbo loan, there are some things you can do on your own to ensure a smooth closing.
The first thing you can do to help is nothing, meaning DON’T change your current situation. When your loan officer issues your initial preapproval it’s based upon what your financials and credit looked like when you first applied. Many borrowers may not realize this, but the loan application essentially runs through two separate approvals- one at the beginning and one final review just before ordering loan papers.
If there are some changes to the credit report such as a new account being opened or evidence of a new request for credit, you’ll need to document and explain these changes in writing. Even if you applied for an automobile loan but decided now’s not the time for a new car, that initial request for credit will show up on your credit report and your lender will want to know whether or not whether you have a new car payment that you didn’t have when you first applied.
Second, work closely with your loan officer and respond quickly. The closing date on your sales contract is looming and when your loan officer asks for something, provide it. This is especially true when submitting your initial documentation. You’ll be provided a list of what is needed early on so don’t waste time gathering this information. Get your documentation to your loan officer as quickly as possible.
You might also expect additional requests for more information after your loan has been submitted and preapproved. These requests are referred to as “loan conditions” and as the name implies means you have a loan approval “on condition” that certain things are provided and met.
Loan conditions can be categorized as “prior to documents” or “prior to funding.” A prior to document condition means your loan papers can’t be printed until you’ve provided what is needed and reviewed and approved by the lender. A prior to funding condition means the lender can go ahead and print your papers and deliver them to your settlement agent but funds won’t be released for your new mortgage until these conditions have been settled. A common prior to funding condition might be a missing signature or an updated paycheck stub.
A prior to document condition is something that your lender needs more clarification on before ordering your loan documents. This type of condition means a loan approval isn’t a sure thing until other questions are answered. However, don’t be alarmed when your loan officer comes back to you asking for more information. Most loans that ultimately get approved have a number of loan conditions. It’s rare for a loan to go from an initial approval straight to funding without additional documentation or clarification.
It’s also a good idea to stick with your original loan choice. Different loan programs can have different qualifying guidelines, especially should you decide to switch between an adjustable rate mortgage or hybrid to a fixed rate loan. An ARM or hybrid can have a lower start rate compared to a fixed rate program which means switching to a higher rate means getting your loan approved using brand new numbers. This can also mean not changing the term of your loan while your application is being reviewed.
For instance, let’s say you decide you want to save on long term interest and you tell your loan officer you want to switch from a 30 year loan to a 15 year term. Such a move will dramatically increase your monthly payment and debt to income ratio number, therefore your application will be reviewed again and new disclosures issued. There is plenty of time to discuss with your loan officer all your choices but once that decision is made, stick with it if you can.
Questions about the process, or want to learn how to apply? Please call us 7 days a week at 800-962-0677 or just submit the Quick Contact form on this page for expedited service.