Getting a conventional loan after a foreclosure can be extremely difficult. Getting a jumbo loan, which involves significantly more money, may seem impossible.
However, it is possible to get a jumbo loan for the purchase of a large house after a foreclosure. By taking the right steps and organizing your documents and finances, you can make yourself a more appealing borrower to lenders.
Foreclosure in the Past? You’re Not Alone
When we think of foreclosures, many recall the financial downturn that started around 2007 and carried well into the next decade. During this time period, there were over ten million foreclosures across the country. According to information from Attom Data Solutions, there were over 1 million foreclosures in 2007, peaking in 2010 with nearly three million in a single year. In fact, annual foreclosures didn’t drop below one million until 2016. That’s nine consecutive years with over 1 million foreclosures!
The reason we throw these numbers at you is to remind you that you’re not alone. If you have experienced a foreclosure, you are among millions of Americans. Because so many people were affected by the financial crisis, lenders are more willing to work with people to help issue mortgages. This includes conventional FHA-backed loans, but it also includes jumbo loans, which generally involve lending millions of dollars.
How to Get a Jumbo Loan After a Foreclosure
Getting a jumbo loan after a foreclosure is possible, but you need to do your work ahead of time to ensure the best results…
Five to Seven Years is the Common Wait
In most cases, you will need to wait five to seven years to get a jumbo loan after a foreclosure. This is not a hard rule, but a general timeframe for repairing credit, saving money, and establishing a solid financial foundation. While getting a jumbo mortgage in less time is possible, you should expect to wait at least five years after a mortgage.
However, if waiting this long is not possible, we’d encourage you to talk with a mortgage professional who can help create a faster turnaround.
Research Portfolio Loans
Most loans are written to a government organization’s standards. These standards can come from the FHA, Fannie Mae, Freddie Mac, or the Department of Housing and Urban Development; any loan that fits within these standards is insured or backed by the government, reducing risk to the lender.
A portfolio loan, however, is completely underwritten by the lender. To be fair, all jumbo loans, because of their size, will be outside of the government’s standards, so they are portfolio loans. To get a jumbo loan, you’ll need to understand the specifics of portfolio loans and how they work. Once again, an experienced professional can help.
Look Towards ARM Loans
It may be possible to be approved for a fixed-rate jumbo loan, but as you seek approval, you’ll likely find that adjustable-rate mortgages, or ARM loans, are more accessible. In many cases, lenders have an easier time approving ARM mortgages, which often have a locked-in rate for an initial period, generally the first five to ten years.
While the interest rate on an ARM can go up, resulting in higher payments, it may be possible to refinance into a fixed-rate loan once your credit has been restored and their is more time since the foreclosure.
Use Bank Statement Information
Because the lender is essentially writing the loan with little to no financial safety net (like they would have if the loan was within government standards), they generally want far more information on your finances and net worth. One way to prove your income is to use bank statements, which is especially useful if you are self employed.
Bank statements show that you have a consistent history of payments and demonstrate your financial stability.
Bring a Significant Down Payment
It should come as no surprise that a large down payment will increase your chances of approval. The more money you can bring to the table, the better chance you have at getting approved for a jumbo loan after a foreclosure.
This down payment not only demonstrates to lenders that you are on solid financial ground, it also helps reduce the loan-to-value, which is an important factor in lending. Loan-to-value is a percentage of the loan to the value of the property. If a property is worth $2 million, and you have a $500,000 down payment, the LTV is 75%. (The down payment of $500,000 is 25%, the loan of $1,500,0000 would be the remaining 75%.) The lower the LTV, the better your chances of approval, so a big down payment is a huge boost.
Work with Smaller, Regional Lenders and Banks
In many cases, the large national banks have more difficulty making unique loans in special situations, such as jumbo loans after a foreclosure. Because of their size, they have a rigid process for writing loans, and going outside of these parameters is nearly impossible. There are certainly advantages to these large institutions, but when it comes to jumbo loans and post-foreclosure lending, local institutions often have more flexibility.
Use Retirement Assets to Lower Your Debt-to-Income Ratio
Freddie Mac has made it possible to use certain retirement funds as a source of income when applying for a traditional loan. This lowers a borrowers debt-to-income ratio and makes certain government-backed mortgages more available.
However, it has always been possible to use retirements accounts and income towards portfolio and jumbo loans. Bringing verification of this income can help you demonstrate a consistent flow of cash, making lenders more comfortable with your financial situation. Depending on the lender, documenting retirement income could bring significant advantages when you search for a loan.
Jumbo Loans After a Foreclosure Are Possible
If you have gone through a foreclosure, you deserve to work with a mortgage professional who can take a common-sense approach to underwriting. We understand that good, hardworking people experience financial troubles every day, so we’ll do whatever we can to get you approved!
Contact San Diego Purchase Loans and we’ll go beyond the simple numbers to help you get approved for an affordable jumbo loan.
