If you’re in the mortgage industry you already know that both Fannie Mae and Freddie Mac raised the maximum conforming loan limit for 2023. The increase, from $647,200 to $726,200 took effect on January 1, 2023. Each year, Fannie Mae compares the average home value nationwide in the third quarter with the average home value in the third quarter from the previous year. This year-over-year 12% increase allowed for the conforming loan limit to its current level.
A jumbo loan is any amount above the conforming loan limit. In Lexington or Louisville Kentucky for example, the conforming loan limit is $726,200. A jumbo loan is any amount above that figure. When lenders evaluate a jumbo loan application the approval process is much the same as when processing a conforming loan request. Lenders review income, credit, and cash to close as the primary ingredients to issue an approval.
The buyer’s income is verified by reviewing the most recent paycheck stubs covering a 30-day period. The income used for qualifying purposes is the gross monthly income, not the amount after withholdings are deducted. In addition to the check stubs, the lender will request W2 forms from the previous two years.
In addition to qualifying income jumbo loans require at least a two-year history of employment which is then supported by the W2 forms. Lenders want to see a similar annual amount from one year to the next and will also compare year to date earnings that appear on the paycheck stubs with the amounts showing on the W2 forms.
For borrowers that are self-employed or receive income from sources, jumbo loans require a review of the previous two years federal income tax returns. Again, this income should be consistent from one year to the next. The income will be added together and then divided by 24 (months) in order to arrive at a qualifying figure.
Of course, credit is also a mainstay with a jumbo loan approval. When a lender or bank receives a jumbo loan application there are three separate credit reports ordered, one each from Experian, Equifax and TransUnion. Due to minor differences in reporting dates by various merchants and businesses to these three repositories, the credit scores that accompany these reports will be similar but rarely exactly the same.
The credit scores range from 300 to 850 and of the three reported scores the lender will use the middle score for evaluation purposes. The minimum credit score required for 95% jumbo loans is 700. Learn more about all the Jumbo loan purchase requirements.
Lenders must also verify sufficient funds to close on a transaction. If a borrower is making a 5% or 10% percent down payment the lender will review recent bank statements showing there are enough funds for the down payment in addition to the amount needed to pay for associated closing costs at the settlement table. Lenders also want to see additional funds left over after subtracting the amount for a down payment and closing costs.
These funds are called “reserves.” If a lender asks for six months’ worth of reserves, which means there needs to be at least six months of mortgage payments in a liquid account. The payments must include not only the principal and interest amount but for property taxes and insurance as well.
Jumbo Loan Center is proud to serve home buyers across the nation including KY: Louisville, Lexington-Fayette, Bowling Green, Owensboro, Covington, Richmond, Hopkinsville, Florence, Georgetown, Elizabethtown, Henderson, Nicholasville, Frankfort, Jeffersontown, Independence, Paducah
We specialize in the latest low down payment 90% and 95% Jumbo loan solutions. 80-10, 80-15, fix rate and ARM with no PMI.