How to get preapproved for a jumbo loan

Be ready with proof of income, employment history and details about your credit history when you apply to be preapproved for a jumbo loan. Most lenders expect a credit score of 700 or higher — 740 for the best rates.

How to get preapproved for a jumbo loan:

Prequalifying for a loan is not an actual application, so it requires less information and time. Applications vary depending on the lender, but for most, you can expect:

1. Compare lenders based on loan limits, rates, down payment, closing costs and underwriting requirements.
2. Fill in your contact information to get a loan quote. Most lenders require details about your employment and credit info. You may need to prove that you can afford the down payment — often as high as 20% of the loan.
3. Your lender reviews your application.
4. Receive your preapproval decision with loan and rate estimates.

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What questions will I need to answer?

Jumbo loans come with strict prequalification requirements, so lenders ask questions surrounding your income and credit. Questions you can expect include:

• Proof of income. Be ready with at least two recent pay stubs and your previous two years of W2 tax forms. Self-employed borrowers need the last two years of tax returns and bank statements for the last two months.
• Employment history. Lenders want to see two years of steady employment at the same job. Part of the loan process involves verifying your employment history.
• Debt-to-income ratio. Most lenders won’t accept a debt-to-income (DTI) ratio of over 43%. If your DTI exceeds that amount, you’ll need a really high credit score, a large down payment and cash flow to show that you can afford the mortgage payments.
• Credit score. Although most lenders set their own credit score requirements, most require at least a 700 FICO score to qualify for a jumbo loan. You’ll need a 740 credit score to get the best rates.
• Loan-to-value ratio. A jumbo loan usually requires a loan-to-value (LTV) ratio of around 20%, or about 20% for a down payment. The higher the down payment, the lower your LTV ratio.

The jumbo loan preapproval timeline

You can typically fill out a preapproval application online in a few minutes. Once you provide your personal information like your name and income, the lender sends your preapproval letter within three business days.

Your preapproval letter is usually valid from 60 to 90 days and could come with two expiration dates: One for when the estimated closing costs expire and another indicating how long your rate is good for.

What happens if I’m rejected?

You have the right to ask the lender why it rejected your loan preapproval. If your credit score was the problem, consider making moves to improve your score like paying off credit cards and increasing your DTI. If the lender found negative information on your credit report, contact a credit agency like Equifax to check for errors.

If you think you’d qualify with another lender with more flexible eligibility, you can apply again. However, some lenders do hard pulls on your credit, lowering your score. But don’t let that stop you from shopping around — applying to multiple lenders within 45 days can protect your credit score.

Bottom line

Preapproval for a home loan is an important step towards homeownership. You’ll know how you stack up against the lender’s underwriting guidelines and increase your chances of getting approved for the actual loan application. Be sure to compare lenders to find one that best fits your financial situation.

Frequently asked questions

• Do preapprovals hurt your credit score?

  Preapprovals are usually soft inquiries on your credit score and don’t affect your credit score. However, if you decide to follow through and apply for the loan, the lender will initiate a hard inquiry. Hard inquiries will typically temporarily drop your credit score five to 10 points.

• How far in advance should I get preapproved?

  Since a jumbo loan preapproval is usually only good for up to three months, you should get preapproved right before you seriously start looking at homes.

• Why was I preapproved for a loan but later denied?

  Preapproval has a lower level of scrutiny than the official loan application. Once you apply for a loan, the underwriting process verifies every detail with proper documentation. During this time, your income, employment and debt situation can’t change.

  If your loan is denied, ask your lender why. Under the Equal Credit Opportunity Act, your lender is required to provide a written explanation for why it denied your application.