Have you lost a high-end client because they could not qualify for financing? That's an awful feeling! In my experience, the guideline that is the hardest to satisfy is the cash reserve requirements.
Cash reserves are the amount of money the client has left over after the down payment and closing costs. It is usually measured in terms of the number of months of principal, interest, taxes, and insurance (PITI) they have left over after the close of escrow.
Cash reserve requirements are not standard for jumbo loans. Each lender has their own level of comfort in terms of how much they require. How much they require can depend on the loan amount and the loan-to-value percentage (LTV).
In addition, all cash is not created equally! For example, some jumbo lenders count 70% of the value of stocks, bonds, and mutual funds. Retirement funds are usually discounted to 60% of the present value.
Loans that are sold to Freddie Mac and Fannie Mae typically require two months of PITI reserves. Prepare your high-end clients to have at least three times that amount left over after the close! You may be able to find a lender that only requires two months of PITI reserves, but that is the exception, not the rule for a jumbo loan.
One more detail to pay attention to - cash reserve requirements typically apply to all property owned! If your client owns other property, the lender may want their cash reserve requirements met for all the properties.
For example, suppose the jumbo lender requires 6 months of PITI reserves. Also suppose the PITI for the new home will be $4000. The client also owns three other properties that are $2000 each PITI. This lender will require $60,000 in cash reserves to cover the new property plus the others already owned.
As a real estate agent it is extremely important to know these guidelines are crucial if you have high-end clients. Here are a couple of ideas to make sure that the cash reserve requirements don't come back to bite you late in the transaction:
- Refer your client to a lender that you know has experience with jumbo loans. Jumbo loans are a totally different animal than conventional and government loans.
- Specifically ask the lender what their cash reserve requirements are. Ask them what percentage of retirement and marketable securities are (stocks, bonds, mutual funds). If they fumble with these answers, it's time to look for another jumbo lender!
I have found high-end loan clients to be very loyal because I know the questions to ask. I don't waste their time or mine with programs they can't qualify for. Hopefully your high-end clients will appreciate you asking the crucial questions for them!
Phil Caulfield NMLS #386911 APMC #1850 has been helping people obtain mortgages since 1985. The views, articles, postings, and information listed at this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation."