High Balance Mortgage Loans

FHA and Conforming High-Balance Mortgage Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

Traversing the landscape of mortgage loans can be an intricate voyage, presenting many options tailored to meet diverse financial requirements. Two common choices for homebuyers seeking financing are FHA (Federal Housing Administration) loans and Conforming High-Balance Mortgage Loans. Throughout this blog, we will dig deep into the features, advantages, and factors to consider for each option, aiming to assist you in making a well-informed decision when choosing the most appropriate mortgage for your home purchase.

High-Balance Mortgage Loans are government and conventional loans with higher loan limits than the standard $726,200 conforming and the $472,030 FHA loan limits for 2023.  High-Balance Mortgage Loans in high-cost areas in the U.S. are often referred to as FHA and Conventional Jumbo loans. VA loans do not have a maximum loan limit. Standard-conforming and VA loan limits higher than $726,200 are called jumbo VA loans or high-balance VA loans.

VA no longer has a maximum loan limit, but VA loans exceeding the conforming loan limit are still called VA Jumbo loans or VA high-balance mortgage loans. High-Balance Mortgage Loans are an excellent mortgage loan option for buyers of higher-priced homes because they can still put a 3% to 5% down payment on a 1 million dollars plus property. High-Balance Mortgage Loans do not require a 20% down payment like traditional or non-QM jumbo loans.

Jumbo conventional and VA loans with higher than the 2023 conforming loan limits are considered high-balance mortgage loans. FHA, VA, and Conforming High-Balance Mortgage Loans are often called FHA Jumbo Loans or High-Balance Conforming Loans. VA loans no longer have a maximum loan limit. The following sections cover High-Balance Mortgage Loans on FHA and Conventional loans in high-cost counties nationwide.

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FHA and Conforming High-Balance Mortgage Loans

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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 higher than the 2023 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.

There are no guideline differences between standard VA loans and VA high-balance mortgage loans. The only difference between standard VA loans and VA high-balance mortgage loans are mortgage rates. VA jumbo loans are considered riskier mortgage loans versus standard VA loans. This is because it is harder to sell a high priced home versus a standard sized home.

High-Balance VA loans have loan level pricing adjustments which means pricing hits for being a VA jumbo loan. VA high-balance jumbo loans have higher mortgage rates than standard VA loans. Jumbo VA loans have higher pricing hits on lower credit score borrowers. Later in this article, we will discuss loan-level pricing adjustments on high-balance VA, FHA, and conforming loans.

What Are High-Balance Mortgage Loans?

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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, the FHFA and HUD released the conforming loan limits on conventional and FHA loan limits on FHA loans. 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.
There are counties throughout the country where home prices are higher than the median home values in traditional home priced areas. Counties where home values are higher than the standard priced areas or low-cost areas, are classified as high-cost areas. FHA and Conforming loan limits in high-cost areas are higher than low-cost counties of the nation.
High-cost areas, like many counties in California, are called high-cost areasA 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.

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Loan Limit on High-Balance Mortgage Loans Increase Due To Increasing Home Prices

FHFA increased Fannie Mae and Freddie Mac Conventional Loan Limits for 2023 to $726,200. VA loans no longer have maximum loan limits. HUD, the parent of FHA, will most likely follow FHFA’s lead in increasing FHA Loan Limits for 2023 to $472,030. Any mortgage loan limits exceeding these are called High-Balance Mortgage Loans or FHA Jumbo Loans and VA Jumbo Loans.

FHA and Conforming high-balance mortgage loans in high-cost areas for 2023 is capped at $1,089,300 for single-family homes. As you can see, it is substantially higher than the standard FHA loan limit of $472,030 and Conforming loan limit of $726,200 in standard low-cost counties of the U.S.

Other terms used to referred High-Balance Mortgage Loans are super conforming loans. This article will cover and discuss high-balance mortgage loans on FHA, VA, and conforming loans versus other jumbo mortgage options. 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 Mortgage Loans

90% LTV Jumbo Mortgages Versus Non-QM Jumbo Loans

Gustan Cho Associates offers traditional 90% LTV Jumbo Loans without mortgage insurance. The 10% down payment traditional jumbo mortgage program requires a minimum of 660 FICO and up to a 50% DTI. Jumbo Loans are any government or conforming loans higher than $726,200.

Gustan Cho Associates has both traditional and non-QM jumbo loans. There are two types of traditional jumbo loans: High-balance mortgage loans which are government and conforming loans and full-documentation jumbo loans with the traditional 20% down payment.

Fannie Mae and Freddie Mac did not raise Conventional Mortgage Loan Limits from 1980 until 2011. In 1990, Fannie and Freddie decreased Conventional Loan Limits by $150. Any Conventional Loans higher than the general conforming limit are considered Jumbo Mortgages. Jumbo Lenders have much stricter mortgage lending guidelines.

Mortgage Rates on High-Balance Mortgage Loans Versus Traditional Jumbo Loans

Mortgage Interest Rates on Jumbo Loans are higher than on conventional and government loans. High-balance government and conforming loans have higher rates on high-balance loans versus traditional loans in average-priced areas. Many Jumbo Mortgage Lenders quit the business after the 2008 Real Estate And Credit Collapse. The high-balance loan limit for FHA and conventional loans for 2023 is $1,089,300 for single-family homes.

Lenders charge higher rates based on risk factors. There is more risk on high priced homes than lower traditional homes. Therefore, mortgage rates on jumbo loans are higher. The same goes for high-balance mortgage loans on FHA, VA, and conventional loans.

Sub-Prime Mortgages and Bank Statement Mortgage Loans 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, Conventional High-Balance Mortgage Loans, no-doc loans, and other non-QM loan programs.

Fannie Mae And Freddie Mac Conforming High-Balance Mortgage Loans

High-Balance Mortgage Loans were implemented on Conventional loans by Fannie Mae and Freddie Mac starting in 2008. To qualify for High-Balance mortgage loans, it was not the borrower but the area needed to be located in a high-cost area.

California home values is among the highest in the country. There are more high-cost areas in California than any other county in the nation. Many homebuyers with six figure income cannot buy a house in California due to high home prices.

If the property is not in a high-cost county, 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 $1,089,300 in high-cost counties. The loan limit on a single-family home is capped at $1,456,200 in Hawaii, Alaska, U.S. Virgin Islands, and Guam. High-Balance Mortgage Loan Limits can change. Gustan Cho Associates have non-QM jumbo loans with no maximum loan limit for single-family homes.

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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 are capped at $1,089,300. FHA high-balance loans, often referred to FHA jumbo loans, has the same HUD agency guidelines as standard FHA loans, says Dale Elenteny of Gustan Cho Associates:

The down payment requirements on FHA Jumbo high-balance mortgage loans is 3.5% and the minimum credit scores is 580. You can qualify for FHA high-balance mortgage loans with credit scores down to 500 FICO. However, with FHA jumbo loans with under 580 credit scores, you need a 10% down payment like standard FHA loans in low-cost areas.

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 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.

Like FHA Jumbo loans, the Department of Veteran Affairs offers VA Jumbo loans. One great benefit of 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. However, any VA loan higher than the conforming loan limit is called a high-balance VA loan. The VA guidelines on high-balance VA loans, is the same as standard VA loans.

Veterans with a valid certificate of eligibility with sufficient entitlement can qualify for a VA loan with no maximum loan limit. You do not need a down payment on VA loans even though they are VA high-balance mortgage loans. Closing costs can be covered with seller concessions and a lender credit if the seller concession is not enough.

Homebuyers can purchase million-plus dollar homes without a 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.

HUD High-Cost 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 2023, you are already aware of the loan limit increases. FHA and Conforming high-balance loan limits for 2023 are at $1,089,300 for single-family homes:

There are no additional mortgage guidelines on FHA high-balance mortgage loans. The agency guidelines on FHA jumbo loans are the same as the FHA lending guidelines on standard FHA loans.

The following sections will detail using an FHA loan to purchase a home in high-cost counties. Many parts of the United States have counties where the average home value exceeds the national median home value. These areas are called high-cost areas. High-cost areas include Denver, Colorado, San Francisco, and Los Angeles, California. We will also discuss FHA mortgages’ advantages and how to apply for an FHA loan in a high-balance area at Gustan Cho Associates.

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

Since the Federal Housing Administration (FHA) places limits on the mortgage 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 yearly based on the home price index (HPI) throughout the past 12 months. The loan amounts have been increased yearly for the most recent years.

HUD high-balance mortgage loans have a maximum loan limit of $1,089,300 in high-cost areas only require 3.5% down payment for borrowers with at least a 580 credit score. The only difference with FHA jumbo loans versus traditional mortgage loans are loan-level pricing adjustments which are higher rates since they are considered jumbo loans.

There have been times in history when loan amounts have decreased based on property values decreasing. Once again, these numbers are based on the home price indexes. Home values will fluctuate dramatically depending on where you live in the country. 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.

HUD High-Balance Versus Baseline FHA Loan Limits

The baseline limit for FHA mortgages for 2023 is $472,030. The maximum on the bed or ceiling is $1,089.300.  Any area where the. FHA loan limit above $472,030 is considered a high cost or a high balance area. That is because the average median home cost is more than the HUD maximum loan amount for non-high-cost areas ($472,030).

HUD high-balance mortgage loans are any FHA loan higher than the baseline loan limit of $472,030. Any FHA loans higher than the FHA baseline loan limit of $472,030 up to the ceiling of $1,089,300 are considered FHA high-balance mortgage loans.

The Federal Housing Administration is overseen by the U.S. Department of Housing and Urban Development (HUD). HUD’s top priority is to provide affordable home housing to Americans. 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, the parent of FHA, has the most lenient agency guidelines because they want to promote home ownership among the hard working Americans. Homebuyers with less than perfect credit can purchase a home with only a 3.5% down payment with little to no closing costs due to seller concessions and lender credit.

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. Compared to conventional mortgages, FHA waiting periods are more forgiving for catastrophic events such as a foreclosure, short sale, or deed-in-lieu. FHA loan requirements after foreclosure and deed-in-lieu-of-foreclosure are the same on FHA Jumbo loans versus standard FHA loans in low-cost areas. Dale Elenteny explains the waiting period start date after a housing event:

There is a three year waiting period from the recorded date of foreclosure or sheriffs’ sale. The waiting period does not start on the day the homeowner surrendered the keys to the lender. It is always the recorded date where the name of the deed has transferred ownership.

There is a three-year waiting period after a housing event on FHA Jumbo and FHA regular loans. The waiting period after foreclosure, deed-in-lieu of foreclosure, short sale, and bankruptcy is the same on FHA jumbo loans as on standard FHA loans in low-cost areas. Even with a foreclosure, you must only wait three 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 for returning homeownership after a derogatory event.

FHA High-Balance Mortgage Loans After Chapter 13 Guidelines

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HUD, the parent of FHA, has lenient 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. Homeowners with equity in their homes can do a Chapter 13 Cash-Out Refinance Buyout:

Borrowers do not have to have their Chapter 13 Bankruptcy to qualify for an FHA Jumbo Loan while in Chapter 13 Bankruptcy. Once you file Chapter 13 Bankruptcy, the day you have made your 12th Chapter 13 scheduled monthly payment to the bankruptcy trustee, you will be eligible to qualify for an FHA high-balance jumbo loan.

Remember, you will need the trustee’s permission to enter this new mortgage. You will not have any issues with a bankruptcy trustee signing off on a mortgage if you can repay the new mortgage payment. The waiting period on a Chapter 7 mortgage is only two years for an FHA mortgage, whereas it is four years for a conventional mortgage.


HUD Debt-To-Income Ratio Guidelines on FHA Loans

Higher debt-to-income thresholds: Conventional mortgages have a maximum debt-income ratio of 49.99%, whereas FHA mortgages can get automated approval up to 56.99% (back-end ratio). Gustan Cho Associates has no lender overlays on the debt-to-income ratio on FHA Jumbo loans. You will get an approve/eligible with a maximum front-end 46.9% and 56,9% back-end debt-to-income ratio on FHA high-balance mortgage loans.

The key to getting an approve/eligible per automated underwriting system on FHA high-balance mortgage loans is to have timely payments in the past 12 months.

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 ensure you are not stretching your housing budget too far.

FHA High-Balance Mortgage Loans on Manual Versus Automated Underwriting System

FHA and VA loans are the only two mortgage loan programs that allow manual underwriting. The manual underwriting guidelines on FHA and VA loans are almost identical, except for timely and recent late payments. HUD, the parent of FHA, requires 24 months of timely payments from borrowers on all their monthly payments. VA requires 12 months of timely payments. 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 we do. FHA MANUAL UNDERWRITING guidelines can be confusing; selecting a lender who knows the manual underwriting process is important. We are manual underwriting experts and can get your file to the finish line.

Best Mortgage Lenders With No Overlays

Gustan Cho Associates has a national reputation for being able to do mortgage loans other lenders cannot do. We have a reputation for being a one-stop mortgage lending shop. Applying for a high-balance FHA loan with Gustan Cho Associates is simple. Homebuyers who have any questions on high-balance mortgage loans, please contact us at Gustan Cho Associates at 262-627-1965. Text us for a faster response. Or you can email us at gcho@gustancho.com.

The team at Gustan Cho Associates has a reputation of being able to approve borrowers other lenders have denied. Over 80% of our clients at Gustan Cho Associates are borrowers who could not qualify at other mortgage companies because of a last-minute mortgage loan denial, or because of lender overlays.

Once you have completed the online application and sent in the required documentation, your loan officer can 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. The team at Gustan Cho Associates is available seven days a week, mornings and evenings.

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