High-Balance Mortgage Loans: Conforming And Government Jumbo Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

High Balance Mortgage Loans are government and conventional loans that have higher loan limits than the standard $647,800 conforming and the $420,680 FHA loan limits for 2022. Standard-conforming and VA loan limits higher than the $647,800 are called jumbo conventional and jumbo VA loans. Jumbo conventional and VA loans with higher than the 2022 conforming loan limits are considered high-balance mortgage loans. FHA, VA, and Conforming High-Balance Mortgage Loans are often referred to as FHA Jumbo Loans, VA Jumbo Loans, and Jumbo Conforming Loans.

FHA, VA, Conforming High-Balance Mortgage Loans

FHA high-balance jumbo loans, VA high-balance jumbo loans, and conforming jumbo loans are high balance loans in high-cost areas.

FHA high-balance jumbo loans, VA high-balance jumbo loans, and conforming jumbo loans are high balance loans in high-cost areas. There are no maximum loan limits on VA loans. However, VA loans with higher than the 2022 conforming loan limits are called Jumbo VA Loans. There is no major difference in VA loan requirements between standard VA loan requirements and Jumbo VA loan requirements except loan level pricing adjustments on VA high-balance jumbo loans. Jumbo VA loans have higher pricing hits on lower credit score borrowers. We will be discussing loan level pricing adjustments on high-balance VA, FHA, and conforming loans later in this article.

What Are High-Balance Mortgage Loans?

High-balance mortgage loans are home mortgages that exceed the standard loan limits published annually by the Federal Housing Finance Agency (FHFA) on conforming loans and by the U.S. Department of Housing and Urban Development (HUD) on FHA loans. Every year, both the FHFA and HUD released the conforming loan limits on conventional loans and FHA loan limits on FHA loans. Both conforming and FHA loans have a ceiling cap on high-balance conforming jumbo loans and high-balance FHA loans in which the property is financed. High-balance VA jumbo loans do not have a maximum loan limit or ceiling cap. High-balance VA jumbo loans are VA loans exceeding the maximum conforming loan limits.
  • There are areas in the country that is more expensive than others
  • Those areas, like many counties in California, is called high-cost areas
  • A 2,000 square feet home on a quarter acre in San Francisco, California will cost much more than the same type of home in Springfield, Illinois
  • Both FHA, Fannie Mae, and Freddie Mac set maximum mortgage loan limits each year for every county of every state in the U.S.
  • FHFA increased Fannie Mae and Freddie Mac Conventional Loan Limits for 2022 to $647,200
  • VA loans no longer have maximum loan limits
  • HUD, the parent of FHA, will most likely follow FHFA lead in increasing FHA Loan Limits for 2022 to $422,680
  • Any mortgage loan limits that exceed these loan limits is called High Balance Mortgage Loans or FHA Jumbo Loans and VA Jumbo Loans
  • Other terms used to referred High Balance Mortgage Loans are super conforming loans

In this article, we will cover and discuss high-balance mortgage loans on FHA, VA, and conforming loans versus other jumbo mortgage options.

90% LTV Jumbo Mortgages Versus Non-QM Jumbo Loans

Gustan Cho Associates offers traditional 90% LTV Jumbo Loans with no mortgage insurance. The 10% down payment traditional jumbo mortgage program requires a minimum of 660 FICO and up to a 50% DTI. Any government and/or conforming loans that are higher than $647,680 are called Jumbo Loans. Fannie Mae and Freddie Mac did not raise Conventional Mortgage Loan Limits from 1980 until 2011. Back in 1990, Fannie and Freddie decreased Conventional Loan Limits by $150. Any Conventional Loans that are higher than the general conforming limit are considered Jumbo Mortgages. Jumbo Lenders have much stricter mortgage lending guidelines.

Mortgage Rates On Jumbo Loans Versus Mortgage Rates On High-Balance Mortgage Loans

Mortgage Interest Rates on Jumbo Loans are higher than conventional and government loans.

Mortgage Interest Rates on Jumbo Loans are higher than conventional and government loans. High balance government and conforming loans have higher rates on high-balance loans versus traditional government and/or conforming loans in average-priced areas. Many Jumbo Mortgage Lenders went out of business after the 2008 Real Estate And Credit Collapse. Sub-Prime Mortgages and Bank Statement Mortgage Loans totally disappeared after the 2008 financial crisis. The recent introduction by lenders this year on no-doc mortgages for owner-occupant primary homes was a huge hit. Mortgage Regulators such as the CFPB realized the need for FHA Jumbo Loans, VA Jumbo Loans, and Conventional High Balance Mortgage Loans as well as no-doc loans and other non-QM loan programs.

Fannie Mae And Freddie Mac Conforming High Balance Mortgage Loans

High Balance Mortgage Loans was implemented on Conventional Loans by Fannie Mae and Freddie Mac starting in 2008.

  • In order to qualify for High Balance Loans, it was not the borrower but the area needed to be located in a high-cost area
  • If the property is not located in a high-cost county, then the mortgage borrower does not qualify for high balance mortgage loans
  • The highest loan limit on a single-family home with high balance mortgage loans is capped at $970,800 in high-cost counties
  • Hawaii, Alaska, U.S. Virgin Islands, and Guam, the loan limit on a single-family home is capped at $1,456,200

High Balance Mortgage Loan Limits can change.

FHA High Balance Mortgage Loans

FHA Jumbo Loans are very popular, especially in the state of California.

  • Many counties in California are classified as High-Cost Areas so FHA Loan Limits on single-family homes is capped at $970,800
  • HUD determines what the maximum loan limits of every county in the U.S. are and will designate certain counties as high-cost counties
  • Not all states have high-cost areas
  • There are states like the state of Iowa where there are no high-cost areas

Illinois has three different loan limits as do dozens of other states.

VA Jumbo Loans

Just like FHA Jumbo Loans, the Department of Veteran Affairs offers VA Jumbo Loans.

Just like FHA Jumbo Loans, the Department of Veteran Affairs offers VA Jumbo Loans. One great benefit with VA Loans is that VA Lenders can lend higher than the maximum conforming loan limits since VA no longer has maximum loan limits on VA loans. Homebuyers can purchase million-plus dollar homes with no down payment and 100% financing with their VA loans. Eligible homebuyers can purchase high-priced homes anywhere in the United States and are not limited to homes in high-cost areas of the nation. With VA Jumbo Loans, there is 100% financing in any area including high-cost areas.

 

FHA High-Balance Loan Limits In High-Cost Areas

FHA High-Balance Mortgage Guidelines In High-Cost Counties in the United States:

If you have been following the Gustan Cho Associates updates on FHA mortgages for 2021, you are already aware of the loan limit increases. In this blog, we will detail how to use an FHA loan to purchase a home and a high balance area such as Denver, Colorado or Los Angeles, California. We will also discuss the advantages FHA mortgages offer and how to apply for an FHA loan in a high-balance area at Gustan Cho Associates.

Understanding FHA High-Balance Mortgage Guidelines In High-Cost Counties

Understanding FHA High-Balance Mortgage Guidelines In High-Cost Counties

Since the Federal Housing Administration (FHA) places limits on the mortgage is it insures, it is important to understand the guidelines when buying a home and a high balance area. The Federal Housing Finance Agency (FHFA) will adjust loan limits every calendar year based on the home price index (HPI) throughout the past 12 months. For the most recent years, the loan amounts have been increased year after year. There have been times in history with the loan amounts have decreased based on property values decreasing. Once again, these numbers are based on the home price indexes. Depending on where you live in the country home values will fluctuate dramatically. If you took a single-family house from Nashville, Tennessee and moved it to San Francisco California, the value would be dramatically different. That is why the limits are based on individual counties.

FHA High-Balance Versus Baseline Loan Limits

The baseline limit for FHA mortgages for 2022 is $420,680. The maximum on the bed or ceiling is $980,800.  Any area where the. FHA loan limit is above $420,680 is considered a high cost or a high balance area. That is because the average median home cost is more than the FHA maximum loan amount for non-high-cost areas ($420,680). The Federal Housing Administration is overseen by the U.S. Department of Housing and Urban Development (HUD). HUD’s number one priority is to provide affordable home housing to the American people. If you live in an area where property values are high, HUD still wants you to have access to FHA mortgage financing.

Benefits Of FHA Financing

What are some advantages of FHA financing?

FHA mortgage loans require only a 3.5% down payment. This low-down payment option is designed to open up homeownership to more Americans. It is a common misconception that you need a minimum of 20% saved for the down payment to purchase a home. HUD even allows a 3.5% down payment for multi-unit properties (up to 4-units). A great way to buy a long-term income-producing real estate asset. Please remember, you may only utilize an FHA loan to purchase a primary residence, so you must live in one of the units. Check out our blog on MULTI-UNIT FHA MORTGAGE GUIDELINES for more information.

FHA High-Balance Mortgage Guidelines After A Housing Event

Shorter waiting periods after derogatory credit events.

Shorter waiting periods after derogatory credit events. Compared to conventional mortgages, FHA waiting periods are more forgiving for catastrophic events such as a foreclosure, short sale, or deed-in-lieu. Even with a foreclosure, you only need to wait 3 years from the recorded date to qualify for FHA financing. A conventional loan has a seven-year waiting period! FHA loans are a great tool to get back into homeownership after a derogatory event.

FHA High-Balance Mortgage After Chapter 13 Bankruptcy Guidelines

Looser bankruptcy guidelines:

  • FHA mortgages are much more forgiving during bankruptcies
  • If you are in an active chapter 13 bankruptcy, you may qualify for an FHA high balance mortgage after making 12 on-time payments to the trustee
  • Keep in mind, you will need the trustee’s permission to enter into this new mortgage
  • The waiting period on a chapter 7 mortgage is only two years for an FHA mortgage where it is 4 years for a conventional mortgage

Please see our blog on FHA GUIDELINES WITH RECENT BANKRUPTCIES.

Debt To Income Ratios

Higher debt to income thresholds:

  • Conventional mortgages have a maximum debt-income ratio of 49.99% where FHA mortgages can get automated approval all the way up to 56.99% (back end ratio)
  • Many lenders will not allow this higher debt to income ratio FHA loans, but Gustan Cho Associates do not have any overlays for debt to income

This higher threshold may allow you to qualify for a higher payment, but we want to make sure you are not stretching your housing budget too far.

FHA High-Balance Mortgage On Manual Underwriting Versus Automated Underwriting System

Applying for a high balance FHA loan with Gustan Cho Associates is a simple process.

Manual underwriting:

  • The FHA HANDBOOK is over 1000 pages
  • Part of this handbook will describe FHA manual underwriting guidelines
  • Most lenders do not participate in manual underwriting but once again we do
  • FHA MANUAL UNDERWRITING guidelines can be confusing; it is important to select a lender who knows the manual underwriting process
  • We are manual underwriting experts and can get your file to the finish line

In Conclusion

Applying for a high balance FHA loan with Gustan Cho Associates is a simple process. Home Buyers who have any questions on high-balance mortgage loans, please contact us at Gustan Cho Associates. We are available 7 days a week, evenings, weekends, and holidays.  First, call Mike Gracz on 630-659-7644. After a brief discussion with Mike, an application link will be sent to you from a licensed loan officer in your state. You will also need to gather the following documentation. Once you have completed the online application and sent in the required documentation, your loan officer will be able to pull your credit report and start the pre-approval process. Depending on your qualifications, we may need to use our TBD UNDERWRITING PROCESS. Gustan Cho Associates are your FHA lending experts. Please subscribe to her YouTube CHANNEL to stay up-to-date with the ever-changing mortgage guidelines. We pride ourselves on customer service. We are available seven days a week, mornings and evenings. Please feel free to call us with any FHA mortgage questions. Call Mike Gracz directly on 630-659-7644. We look forward to earning your business.