Summary:
This loan was conditionally approved for borrowers with many financed properties, but the real estate transaction was cancelled.
What Happened?:
A borrower reached out to us and sees if we can help him after he signed a purchase agreement. The mortgage broker that had done his pre-approval couldn’t do the jumbo loan.
The borrowers have a very complex financial situation with recent employment changes and very active real estate transactions. The borrowers were rejected by many lenders to do the jumbo loan due to his complex situation. They had many financed properties.
It took us a while to put his documentations together. Once the loan was ready and submitted to our internal underwriting department, we were able to issue a formal jumbo loan underwriting conditional approval within 2 days. To meet the schedule, our underwriter spent many hours analyzing the financial situations and making sure that everything fit within the jumbo guideline of the investor. I stayed late, and worked with the underwriter to clarify things and waited for the conditional approval. By around 1 am on 2/11/21, the conditional approval was issued; however, to meet the underwriting guidelines, there were many loan conditions for borrowers to document and prove received of rental incomes from many properties. Borrowers had a deadline of 2/10/21 to remove the loan contingency. Eventually, the real estate transaction was cancelled.
Lessons Learned:
- Jumbo loan guidelines are complicated and evolving. Each lender may have their requirements slightly different.
- Borrowers should give complete information to their mortgage professional to do a detail pre-approval.
- Discuss the loan contingency removal period with their mortgage professional before signing the purchase agreement.
- Setup proper expectations with both buyer/seller about closing the real estate transaction with a jumbo loan.
Even though we tried very hard to save this transaction, the purchase transaction was setup to failed at the beginning because the borrowers’ situations were very complicated and the loan contingency period is very short for a jumbo loan.
Possible Alternative Solution:
Looking back, if the proper expectation was set with the seller, instead of doing a jumbo loan, we could have done a combo loan. We could do a cash-out refinance on one of his properties for a bigger down payment, and lower the purchase loan amount to an agency loan limit, which would require much less documentation to prove the rental incomes. Unfortunately, we ran out of time, and the borrowers had to make a decision to remove the loan contingency and risk his deposit.