Loan approval for a first time buyer question.

[Anonymous]

Hello all,

I'll do my best to include as much information as I can.  My wife and I are looking to buy our first home, and were just told, due to my credit, that we don't quality for the loan amount we were looking for.  Hopefully I can get some light shed on my situation!

1. Credit.  Mine in the 640's, wife around 810.  I have three negatives on my credit causing the low number.  One recent Collection that is paid and closed, two cards with zero balance that both had late payments summer of last year (one 90, one 60 days)
2. Income.  Combined salary income $175K, mine $100K - these numbers do not include bonuses.
3. Monthly debt payments.  Zero.  Anything we put on credit cards we pay before end of the month for a zero balance each month.
4. Employment Me - corporate job, close to 10 years with the same company, wife corporate job, close to 4 years with thh same company.
5. Assets/Reserves.  Not including 401K plans, but including savings, gifts, etc. 230K.
6. Location.  Boston, MA.
7. Property.  Newer (less than 5 years built) condo.
8. Value.  $650K max is what we're going for.

We reached out to a couple of banks to get our pre-approval in order to receive the loan amount we'd like (450K).  However, it was made clear to us that we could only be pre-approved for $417.  We were also told that come Jan 1st, new laws would have us be able to be approved for $450.

Can any clarify if that sounds correct, or if we should be looking elsewhere? 

[DallasLoanGuy]

417 is the conforming limit.

jumbo loans are harder. i dont have guidelines right here, but 640 may not do it on a jumbo.

made shane will wake up and wonder by here.... he does more jumbo. he should know off the top of his head.

[Anonymous]

I have heard 680-700 for jumbo loans out here in california.  I am not a broker though...I was just discussing this same thing with my boss who is in the market yesterday.

I would contact the collection and see if you can GW them for deletion, as well as any lates.

If you could get a couple things taken off you might get up to the level you are looking for credit wise.  Otherwise, it will take awhile if you already PIF all your CC to raise your FICO up that much.

[Anonymous]

Thanks.  It sounds like I just don't make the range.  I'm in the process of sending out GW letters for deletion.

Are any of you aware of the mortgage/jumbo limit changing come Jan 1st?

[ShanetheMortgageMan]

When doing conventional financing, in the 48 contiguous states on a 1-unit property, anything over $417k is no longer considered a regular "conforming" loan amount, and like DallasLoanGuy pointed out, and as such, have much more stringent credit requirements.  Depending on your location, a loan amount over $417k could be a "conforming jumbo" loan amount or a "non-conforming jumbo" loan amount.  Boston's current conforming jumbo loan amount limit is $523,750, but that is ending this year, and in 2009 it'll be lowered to $465,750 (not sure what lenders were thinking when they told you it would increase in 2009).  Anything over those amount is a "non-conforming jumbo" loan amount.  Most lenders are no longer doing 2008's limits and are only offering 2009's.  The $524,750 & $465,750 figures are also the FHA loan limits in Boston too.

The difference in qualifying for a conforming, conforming jumbo, and non-conforming jumbo loans vary greatly.  Conforming loan programs just need a 620 score, so you are fine there, however you would be limited to a $417k loan amount - with a top notch score rates are about 5% on a 30-year fixed.  Conforming jumbo programs require a 680 score and 10% down (could be 15% as Boston has been labeled as a declinined area by most sources). so your score would need some help but the down payment you appear to have coverered - with a top notch score the rates are about 5.375% on a 30-year fixed.  Non-conforming jumbo has the most stringent, usually a 700, 720 or 740 scores are needed (very few are doing lower than 700), 20% is a common requirement, and rates usually start in the mid-6's into the 7-9% range depending on the loan amount & LTV.  ARMs are very common for non-conforming jumbos.

It sounds like you should tackle those 3 negatives, perhaps with a goodwill letter, and aim for a 680 score.  Sometime in early 2009 we might see some lenders drop the FICO requirement on conforming jumbo to a 660, as that happened shortly after the current loan limits were effective in March of this year.

[Anonymous]

Shane, thank you for the all of this information!

I'm going to be a bit redundant here, but my intent is to make sure I completely understand this as best I can.  I'm partially thinking outloud and also asking for more confirmation. 

• It sounds like we were approved for the conforming loan, which is the $417.
• We were not approved a conforming jumbo loan (because our ask was for $450 and we only received approval for $417).
• Since we do plan to put 20% down, it would appear my credit score is the reason we were not approved for the conforming jumbo loan.
• Although in 2009 there may be a change in the FICO requirements to attain a conforming jumbo loan, that may not occur until spring or so.

Last but not least, our lender saying that come Jan 1st we'd be approved for $450 (in effect a conforming jumbo loan), doesn't really jibe?

Thanks!

Message Edited by BuildItUp on 12-11-2008 10:18 AM

[ShanetheMortgageMan]

You are welcome, all of your bullet points are true.  Perhaps there is a special program just for Bostonians which does a loan amount of $450k and will only be available from 2009 forward - so it'd be a good idea to ask exactly why it would be easier for you to qualify for a $450k loan amount.

[Anonymous]

Thanks again Shane!

You ask a good question, I have no idea why it'd be easier for us to quality.  I spoke with my wife and she stated that our lender informed us that come Jan 1st he'd pre-approve us for the $465 (the 2009 number you posted) amount. 

I don't know why this would change, especially since I'm assuming my fico score will not change drastically by the end of the month, unless my GW letters prove to be wildly succussful.  I'll be calling him for clarification.

[ShanetheMortgageMan]

It could also be possible that as of right now, the person/lender/broker you spoke with doesn't even have a loan program that exceeds $417k either, as there are quite a few lenders that have suspended the 08 program and haven't rolled out the 09 program either - so they don't have anything to offer anyone above $417k.