In this blog, we will discuss and cover the comparison between Jumbo versus High-Balance Mortgages. What is the difference between Jumbo Versus High-Balance Mortgages In High-Cost Areas? Gustan Cho Associates is a lender licensed in 48 states with over 170 wholesale mortgage lenders on specialty mortgage programs. The team at Gustan Cho Associates are experts in originating high-balance mortgages in California with no lender overlays. The question of the differences between jumbo versus high-balance mortgages in California is one of the frequently asked questions at Gustan Cho Associates.

High-Cost Loan Limits in California of High-Balance Mortgages Have Been Increasing The Past Six Years

Home prices have been skyrocketing in the U.S. in the past several years with no sign of the slightest correction. Due to rising home prices, many homebuyers were limited to what they could purchase. The demand for housing is far greater than the inventory of homes. Homebuilders are raking in millions of dollars. They cannot keep the demand for homes. Homebuilders have search teams looking for vacant land to build. Both HUD and the Federal Housing Finance Agency (FHFA) have increased FHA and Conventional loan limits for the past 6 years in a row so buyers are not priced out of the housing market.

What Is The Difference Between Jumbo Versus High-Balance Mortgages?

FHA and Conforming Loan Limits in Standard and High-Cost Counties of California

California has the nation’s highest home prices. The median home in California is double the average median home price for the rest of the country. The difference between jumbo versus high-balance mortgages in California is that high-balance mortgages with the exception of VA loans have loan limits set by the Federal Housing Finance Agency (FHFA). The maximum FHA and Conforming loan limits on high-balance mortgages for 2022 are capped at $970,800 in California on single-family homes.

FHA Loan Limit in California in Standard Areas on FHA Loans

The 2022 FHA loan limit is now at $420,800 on single-family homes in California. FHA Loan Limits in High-Cost Areas of California is $970,200 on single-family homes. Both HUD, the parent of FHA, and the FHFA, have been increasing FHA and Conforming loan limits for the past six years due to surging home prices. Never before in history has both regulatory agencies been increasing loan limits six years in a row.

FHA High-Balance Jumbo Loans in California

FHA High-Balance Jumbo Loans is any FHA loan higher than the standard FHA loan of $420,680 in any county that is designated high-cost. California has more high-cost counties than any other state in the nation. The state’s tough environmental regulations and zoning laws with the demand for homes is one of the main reasons why California home prices keep surging. The FHA Loan Limit for 2022 in High-Cost Areas of California is $970,200 for single-family homes.

Conforming Loan Limit in Standard Areas California on Conventional Loans

The conventional loan limit in California has been increasing for the past six years due to skyrocketing home prices in California. The FHFA has increased the 2022 conforming loan limit to $647,200 in median-priced areas throughout the nation. However, many counties in California is designated as high-cost areas. High-cost counties have larger loan limits than median-priced areas. The housing market in California is strong and demand far surpasses the inventory of homes. The imbalance of demand versus inventory is skyrocketing home prices. The 2022 Conventional loan limit is now capped at $647,200.

Conforming Loan Limit in California in High-Cost Areas on Jumbo Conventional Loans

2022 Conforming Loan Limit in the high-cost areas in California is capped at $970,800 for 2022. Despite tens of thousands of people exiting California due to the high cost of living and home prices, demand for homes is stronger than ever.  Many families in California are priced out of the housing market. A $647,200 home in Tennessee is not the same as a $ home in 647,200 Los Angeles County, California. The trend for surging home prices is expected to continue.

High-Balance Conventional Loans in California

California home prices are substantially higher than home values in most U.S. counties. For example, the maximum high-balance conventional loan balance in Los Angeles County, California is $970,800 versus the traditional $647,200 in regular counties. A $647,200 home in Nashville, Tennessee is equivalent to a million-dollar home in Los Angeles County, California. Therefore, counties throughout the United States with higher home prices are called high-cost areas.

High-Balance FHA Jumbo Loans in High-Cost Areas For California

Many counties in the state of California are high-cost areas. Government and Conventional loan limits in high-cost areas are higher than the traditional $647,200. These loans are called high-balance conventional loans or Jumbo Conventional Loans. There are differences between High-Balance Conventional Versus Jumbo Mortgages In High-Cost Areas which we will discuss throughout this article. There are many benefits to High-Balance Conventional Versus Jumbo Mortgages.

High-Balance VA Jumbo Loans

There are no maximum loan limits on VA loans as of January 2022. Why is the difference between standard VA loans and VA jumbo loans if VA does not have a maximum loan limit? VA loans that surpass the maximum standard area conforming loan limit of $647,200 is classified as High-Balance VA Jumbo loans due to loan level pricing adjustments. VA Jumbo loans are priced higher due to layered risk on the mortgage lender. In this article, we will discuss and cover High-Balance Versus Jumbo Mortgages In High-Cost Areas.

Benefits Of High-Balance Versus Jumbo Mortgages With The Down Payment Requirements

There are many benefits to going with High-Balance Versus Jumbo Mortgages. High-balance conventional loans for a single-family home in high-cost areas such as Los Angeles County, California is $970,800. To qualify for high-balance conventional loans, the borrowers need to just meet the minimum mortgage guidelines of Fannie Mae and/or Freddie Mac. There are no additional agency mortgage guidelines on high-balance conforming loans versus traditional conventional loans with loan limit caps of $647,200.

FHA Loan Limits in High-Cost Areas

Loan limits on high-balance conventional loans are different depending on the county. HUD is the federal agency that determines and sets the FHA loan limits for high-cost areas in the U.S. For 2022, the ceiling is capped at $970,200 in high-cost counties on FHA loans. If homebuyers need to go over the maximum high-balance loan limit of $970,200 for a single-family home, they need to come up with the overage or qualify for a traditional jumbo mortgage. Loan limits are higher for two to four-unit multi-family homes. Traditional jumbo mortgages have larger down payments and credit guidelines than FHA high-balance jumbo mortgages.

2022 FHA Loan Limits in Standard Areas

HUD, the parent of FHA, sets the FHA Loan Limits throughout the nation. For standard counties in the United States, the FHA loan limit is $647,200 for 2022. FHA loan limits have been increasing for the past six years due to surging home prices. HUD and the FHFA concerns were twofold. Both agencies expressed concerns about skyrocketing home prices and the potential of another housing bubble. This is why HUD lowered the loan to value from 85% to 80% loan to value on cash-out refinances on FHA loans. At the same time, HUD and the FHFA did not want to leave the loan limit flat and have potential homebuyers priced out of the housing market.

What Is a High-Balance Mortgage?

High-balance conventional loans have a minimum down payment requirement of 3% to 5%. First-time homebuyers can qualify for a 3% down payment high-balance conventional loan. First-time homebuyers are defined as home buyers who did not have any interest and/or ownership in a home for the past three years.

Down Payment on High-Balance Conforming Loans in High-Cost Areas

Seasoned home buyers need a 5% down payment on a high-balance home loan. All jumbo loans require a 20% to 25% down payment on a high-end home purchase. This is one of the greatest benefits of High-Balance Versus Jumbo Mortgages. For the maximum conventional limit in a certain zip code, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.

Buying a Home in California in a Booming Housing Market

We are in a housing boom in the United States. Many thought the U.S. was headed towards another housing meltdown worse than the 2008 financial crisis due to the coronavirus pandemic. However, this did not come to fruition. The COVID-19 pandemic had the opposite effect on the housing market. With mortgage rates at historic lows in the 2.0% range on 30-year fixed-rate mortgages, the demand for housing far exceeds its inventory.

What Qualified For a High-Balance Loan?

A high-balance loan is a government and/or conventional loan in designated high-cost areas of the United States that is larger than the standard loan limit in median-priced areas. Housing prices greatly differ depending on the area. The average 2,000 square feet single-family home in the United States is priced at $458,780. However, a 700 square feet condominium in San Francisco can cost well over $1.0 million. All loan programs with the exception of VA loans have maximum loan limits. It is the responsibility and role of The Federal Housing Finance Agency (FHFA) to set maximum loan limits on conventional loans.

Buying a House in High-Cost Areas With High-Balance Conforming Jumbo Loans

The FHFA sets maximum loan limits on conventional loans based on the median home prices in each individual area. This is why areas with higher median home prices such as many counties in California are classified as high-cost areas and have higher  FHA and conventional loan limits. In most areas in the United States, the maximum conventional loan limits are capped at $647,200. However, in most high-cost counties in the United States, the maximum conventional loan limits are capped at $647,200 on single-family homes. Two to four-unit multi-family homes have higher loan limits than single-family homes. The $970,800 maximum conforming loan limit now also applies to single-family homes in Alaska, Guam, Hawaii, and the U.S. Virgin Islands.

Mortgage Process Comparison Between Jumbo Versus High-Balance Mortgages

In this paragraph, we will define what a high-balance conventional loan is. The agency mortgage guidelines on high-balance conforming loans are the same as traditional conventional loans with loan limits capped at $647,200. Conventional loans are often referred to as conforming loans. This is because, in order for Fannie Mae and/or Freddie Mac to purchase conventional loans after it funds by mortgage lenders, it needs to conform to Fannie Mae and/or Freddie Mac agency mortgage guidelines. This holds true with high-balance conventional loans.

Down Payment Guidelines on Jumbo versus High-Balance Mortgages

Due to the liquidity benefits of the secondary bond market in being able to sell mortgages to Fannie and/or Freddie, lenders will easily originate and fund high-balance conventional loans with a 3% to 5% down payment with lower rates than Jumbo loans. Fannie Mae and Freddie Mac will not purchase Jumbo loans.

FHA Guidelines on High-Balance FHA Loans

FHA Loan Limits in high-cost areas are capped at $970,200 on single-family homes. FHA Jumbo loans are a great loan program for first-time homebuyers or homebuyers with bad credit and low credit scores buying a home in a high-cost area. You can buy a home in a high-cost area with an FHA high-balance mortgage loan with a 3.5% down payment. The minimum credit score required for a 3.5% down payment home purchase loan in a high-cost county is 3.5% down payment.

Down Payment Guidelines on Jumbo Versus High-Balance Mortgages

Jumbo loans are portfolio loans and are called non-conforming loans. Jumbo loans are called non-conforming loans. Any mortgage loans that exceed the maximum standard conforming loan limit set by Fannie Mae and Freddie Mac of $647,200 are non-conforming loans. Conforming loans are mortgages that conform to Fannie Mae and Freddie Mac Guidelines. Fannie Mae and Freddie Mac are the two largest buyers of mortgages in the secondary market. The two giant GSEs will only purchase mortgages that conform to their guidelines.

Mortgage Rates on Jumbo Versus High-Balance Mortgages

Jumbo mortgages do not conform to Fannie Mae and/or Freddie Mac agency mortgage guidelines. Jumbo loans require a 20% to 25% down payment versus 3% to 5% on high-balance conventional loans. Jumbo mortgage rates are significantly higher than high-balance conventional mortgage rates. Jumbo loans have higher credit and debt to income ratio standards than high-balance conventional mortgages.

Best Mortgage Lenders For Traditional Jumbo Versus High-Balance Conforming Mortgages

Gustan Cho Associates has no lender overlays on high-balance conventional loans. Gustan Cho Associates has a national reputation for not having any lender overlays on government and conventional loans. To qualify for high-balance mortgage loans with a national five-star lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.