Jumbo loans for higher-priced homes

What makes a loan jumbo

Each year the Federal Housing Finance Agency sets a conforming loan limit, the largest loan Fannie Mae and Freddie Mac will buy. It is the same in most counties, including every county in Texas and Arkansas, and higher only in a few expensive markets elsewhere. Any loan above that number is a jumbo loan. Because Fannie Mae and Freddie Mac will not buy it, the lender either holds it or sells it to private investors, and that lender writes its own rules.

Around Texarkana that usually means larger acreage properties, custom builds, or lake homes. In Dallas, Austin, Northwest Arkansas, or the Houston suburbs, a fairly ordinary house can cross the line.

How jumbo underwriting differs

Jumbo lenders take on more risk per loan, so they look harder at everything:

• A larger down payment than a conforming loan, with the exact amount set by the lender and the loan size
• Cash reserves after closing, often several months of payments, sometimes more
• Stronger credit, with minimums that vary by lender
• Full documentation of income, usually two years of tax returns even for salaried borrowers
• On larger loans, sometimes a second appraisal

Why a broker matters here

Jumbo guidelines vary from lender to lender more than any conforming program. One lender wants a big down payment but is relaxed on reserves. Another is the reverse. A third will count restricted stock or a business's retained earnings that the others ignore. Because Utopia Mortgage is a broker, I can shop your file across a network of lenders and match it to the one whose rules fit your situation, instead of squeezing you into a single bank's box.

I also look at whether a jumbo loan is the right structure at all. Sometimes a conforming first mortgage with a second lien, or a slightly larger down payment that brings the loan under the limit, costs less than a jumbo. I price both.

What to bring

Expect the paperwork to be thorough:

• Two years of personal tax returns, and business returns if you own a company
• Recent pay stubs and W-2s, or a year-to-date profit and loss statement if you are self-employed
• Two months of statements for every account you will use for the down payment and reserves, including retirement and brokerage accounts
• Documentation of any other real estate you own
• A photo ID and permission to pull credit

What happens next

I start with a conversation about the price range and how you plan to fund the purchase, then run the file with two or three jumbo lenders to see who fits. Jumbo pre-approvals take a little longer because underwriters review the file by hand rather than leaning on an automated system, so give me a few days before you need the letter. From contract to closing, plan on a similar timeline to a conforming loan, with the appraisal as the usual pacing item.

All loans are subject to credit approval, and program terms vary by lender.