Is This Conventional Jumbo Loan a Game Changer?
March 2018 – NEW Conventional Jumbo home loan alternative was announced earlier this month.
Conventional Jumbo Highlights
- Up to $679,650 Loan Amount
- Available Nationwide – No restrictions
- Minimum 680 FICO Required
- Maximum 80% Loan to Value
- Maximum 43% Debt to Income Ratio
- Use for Primary and Second Homes
- Easier Guidelines, Less Paperwork than Jumbo
- Not manually underwritten – Follows Fannie Mae AUS findings
- Uses Fannie Mae reserve requirements
- Faster closing times than traditional Jumbo
- ONLY Available through a Mortgage Broker
Changing the Jumbo Game?
A Jumbo loan is really just a fancy way of saying that the loan exceeds the conventional loan limit, so it cannot be underwritten using an automated underwriting system (AUS).
Jumbo home loans are considered a “portfolio loan”, which means that it is manually underwritten by the lender offering the program.
The biggest challenge with Jumbo underwriting guidelines is that there is not really a “standard” set of guidelines like there is when using the Fannie Mae AUS.
The new Conventional Jumbo home loan uses Fannie Mae desktop underwriter (DU) to approve Jumbo loan amounts.
Borrow up to $679,650 Anywhere
The current conventional loan limit was increased for 2018, and allows you to qualify for a home loan up to $453,100 anywhere in the Country.
In many States, there are high cost areas where the median home prices exceed this amount. Fannie Mae already recognizes that these higher cost areas require higher conventional loan limits.
The maximum loan limit for a high cost area is $679,650, but can only be used if you are buying or refinancing in a specially designated “high cost” area.
With the new Conventional Jumbo program, home buyers and home owners can borrow up to $679,650 anywhere in the Country, regardless of what the FHA or Conventional loan limit is.
Owner Occupied Only
At this time, just as this special program is being rolled out, it can only be used to buy your primary residence, or a second home.
Second Home Requirements
- You must live in the home for some portion of the year
- Can only be a single family home, condo or townhome
- Must be suitable for year-round occupancy
- Cannot be rented out when you do not live there
- Cannot be in a timeshare arrangement
- Cannot be subject to any agreements what would restrict you from living in the home at any time
Conventional Jumbo Overlays
When a lender adds more restrictive guidelines above and beyond standard underwriting guidelines, it’s called an overlay.
This simply means that a more restrictive rule is followed instead of the standard published guideline.
Overylays are very common, and most often found when you use a direct lender, credit union or bank to qualify for a home loan.
Qualifying for a traditional Conventional loan requires that you stay within these basic guidelines:
- Minimum 620 FICO
- As low as 3% to 5% Down Payment
- Maximum 50% Debt to Income Ratio
Qualifying for a Conventional Jumbo loan has the following overlays:
- Minimum 680 FICO
- Minimum 20% Down Payment for Homebuyers
- Minimum 20% Equity for Home Owners
- Maximum 43% Debt to Income Ratio
Other than these overlays, you are still running your loan application through Fannie Mae’s automated underwriting system for an approval.
Automated Underwriting Approval
If you meet all of the published guidelines and loan amount exceeds the Conventional loan amount for the State you’re buying in, the lender will receive an automated underwriting decision of Approve/Ineligible.
The Approve part means that you meet the basic underwriting guidelines for a Fannie Mae Conventional loan.
The “Ineligible” part means that the loan amount exceeds the maximum allowed loan amount for the area, which means that this loan is Ineligible to be sold to Fannie Mae.
With an Approve/Ineligible loan approval, you will qualify for a home loan up to $679,650 anywhere in the United States, regardless of what the Conventional loan limit is.
NOTE: Getting an Approve/Ineligible is not the only qualifying criteria. Your loan to value (LTV), debt to income ratios (DTI), and FICO (credit score) must also meet the overlay parameters as described above.
Less Paperwork, Close Faster
Jumbo home loans are manually underwritten by an underwriter.
Jumbo loans are approved on a “case by case”, and because of this, it is common that much more paperwork is required before the lender will give you an underwriting decision.
This new Conventional Jumbo loan uses an automated underwriting decision, there is less chance of an underwriter asking for additional documentation.
By following traditional Fannie Mae guidelines, you will get an approval quicker, with less paperwork required than a typical Jumbo loan.
It is not unusual for a Jumbo loan to take 45 to 60 days to close. The new Conventional Jumbo program can close in as few as 21 to 30 days, sometimes even less.
Lower Reserve Requirement
One of the biggest hurdles when trying to qualify for a Jumbo loan is the amount of reserves you need to qualify.
It is not unusual for Jumbo lenders to require between 6 months and 18 months worth of reserves to get approved for a Jumbo loan.
Conventional Jumbo loans run using an automated underwriting system will most commonly require as little as 2 months reserves.
This is a serious game changer for the families that find home prices too high for traditional financing, and do not have 6 to 18 months of payments in a retirement, checking or savings account.
Mortgage Brokers Only
A mortgage broker is usually a smaller sized, independent mortgage professional that has access to loan programs offered by hundreds of different wholesale mortgage lenders.
A direct lender or a depository bank most commonly only offer a narrowly defined range of home loan options based, and all loans must fit into this “box”.
Small to medium sized mortgage bankers may have the ability to broker loans through another lender, but that is not very common.
This program is being offered by brokers exclusively, through the largest wholesale mortgage lender in the Country, United Wholesale Mortgage (UWM).
UWM does not lend money directly to consumers. You must work with a mortgage broker that is approved to offer loans from UWM.
Questions and Connections
If you have questions about qualifying for this exciting new Conventional Jumbo home loan program, you can either ask a question here, or leave a question or comment below.
If you need an introduction to a professional loan officer that is approved to offer this new program, just let me know what State you’re in and we can connect you to an expert that can help.