Income

Income Qualification on Jumbo Loans – What to expect

If you are getting a jumbo loan, they aren’t necessarily harder to qualify for than conforming loan amounts, though you do need to have adequate income in order to manage a higher payment obligation. These types of loans are designed for borrowers who need to borrow more than the maximum limit for conventional mortgages, which changes periodically and may vary by area. Super jumbo mortgages, on the other hand, are even larger loans that exceed the limit for jumbo mortgages. While there is no set limit for super jumbo mortgages, they typically start at around $3 million and can go up to $20 million or more. Programs vary and the list below should not be considered exhaustive as it covers a summary and review of many typical programs. Investors vary in their requirements, you may consider this an overview.

Jumbo loan income qualification requires supportive documentation in regard to the following:

  1. A full two year employment history. Gaps during that time would need to be supported by previous history and letter of explanation of the circumstances surrounding the gap.
  2. Underwriters will generally be required to create a written analysis to the investor justifying anything that is less than the two years. Borrower may be requested to write letters or provide supporting documentation to assist with the underwriter’s analysis of proof that income is stable and expected to remain so in the future.
  3. There may be an attestation to sign in regard to the recent Covid-19 impact on employment
  4. Any declining income must be proven to have since stabilized and not likely to continue in decline to be included for qualification purposes
  5. The employer of the borrower may need to provide a letter of explanation for any income decline.
  6. Lender will pull transcripts of borrower’s W-2’s and tax documents and do a verbal verification of employment prior to closing
  7. Commissions and Bonus income must have been received for the most recent two years and show on W-2’s and paystubs. Income will be averaged.
  8. Pensions, Annuity, 401k and IRA Distributions may be used so long as there is enough to continue for at least three years
  9. Restricted Stock and Stock Options:
    • Must have been received consistently for two years and show on paystubs, W-2’s and tax returns and must continue for 2 more years
    • A two year average of prior income must be shown
    • Every indication must be that the awards will continue to be received
    • Borrower must currently be employed by employer providing them
    • Must be publicly traded stock
  10. Social Security Income requires the usual documentation of award letter, 1099 and proof of receipt as well as tax return to show taxable amounts
  11. Trust Income may be used so long as the payments are regular and will continue for another three years and has been received for the past 12 months. A copy of the trust agreement or a trustee statement with the particulars of the payment, frequency and may be required to state that it is irrevocable.
  12. Self-employed borrowers should follow all of the other requirements that are typically required for conventional financing. File may be run through one of the automated underwriting engines for conforming conventional financing such as Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Prospector (LP) and whatever it requests in findings. Some Jumbo programs will follow these findings for requirements. A recent Profit and Loss is usually required and particular attention to the year-to-date income will be paid.
  13. Some income sources may not be acceptable such as: deferred compensation, retained earnings, education benefits, any income not considered legal. This also may be an investor specific list. Some investors also exclude income from any source that can’t be verified, income that begins after the date of the Note, Restricted Stock Income (RSU), Rental income from a boarder in the borrower’s primary residence, expense account payments, or auto allowances.
  14. Investors that follow Freddie Mac’s guidelines may also allow rental income if the subject property has an Accessory Dwelling Unit (ADU). If there is currently a lease then 75% of that monthly rent may be used for income, so long as it doesn’t exceed 30% of the borrowers stable monthly income.

Qualifying Ratios on Jumbo programs

There is more residual income for purchasers in the Jumbo market and therefore in some cases the total debt-to-income ratio may go as high as 50% for all debts plus the new mortgage. This is not the case for all programs though. Many will stick with 40%-45% as their guideline and benchmark, even with substantial residual income. It should be noted that these are the ratios you might see for an owner occupied, primary or secondary residence. If the property is an investment property, the ratio requirement might be more like 40% because there is higher risk for the investor on these types of loans.

Bank statement programs may also work in some jumbo scenarios. In these cases a number of months of consecutive bank statements, usually 12-24 months, are collected from the borrower and the income is based on regular deposits. These are often best suited for 1099 only employees or more formal self-employed. Some of the programs do not require a tax return and are predicated on adequate reserves after solid down payment.

Each loan is different and in high income earners, the income may be diverse and complex. It is best to connect with a professional to get details on what type of loan will work best in your particular situation. If you are on the West Coast, click the yellow bobble to the right and reach out. If you are in other areas, reach out to a local mortgage broker to get an idea of what is out there that might work best with your scenario.

Kristin M Eklund NMLS #1872091
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