Have you been doing some research on your own about financing high end real estate only to be confused about some of the words being used? If so, you’re not alone. In fact, the lending industry is somewhat famous for making up its own “lending lingo” with its fair share of loan terms, acronyms and nicknames. Further, individual lenders can even label their own version of loan programs that in essence are no different than a loan offered at another mortgage company. The fact is that in most instances mortgage lenders approve jumbo loan applications using the same basic set of guidelines. Lenders can label a jumbo loan program something like “Silver Jumbo” or some such to try and distinguish its loan programs from competitors.
Another set of terms that sound remarkably similar and can confuse potential borrowers is the difference between High Balance Conforming and Jumbo. At first glance they do seem to describe the very same loan program but in reality they’re not. Let’s explain.
Jumbo loans are so called because the loan amounts are higher than a conforming loan limit. Conforming loans are those that “conform” to guidelines established by Fannie Mae and Freddie Mac. Lenders who approve loans using standards issued by these two mortgage giants have the ability to buy and sell conforming loans as long as the loans were in fact approved using these standards. One of the guidelines for Fannie and Freddie is the maximum loan limit which was raised just this year for the first time in a decade. The conforming loan limit for 2017 is $424,100, up from $417,000. Any mortgage greater than that amount is referred to as a jumbo loan. Or is it?
There is another class called high balance conforming. High balance conforming loans are indeed conforming loans using Fannie and Freddie guidelines yet the maximum loan amount is greater than in most parts of the country. Why do some areas have high balance conforming loans while most other areas do not? Fannie recognizes that median home values in some areas are much greater compared to others and the median home price for the area typically exceeds the existing conforming loan limit. In such areas deemed “high cost” Fannie and Freddie make allowances for these higher values with the high balance loan program. A high balance loan program will have rates just slightly above those reserved for the standard maximum loan limit. A high balance loan limit is at 115% of the median home price for the area with a maximum of $636,150.
However, a jumbo loan can actually be lower than a high balance loan in areas not deemed high cost. In these areas, a jumbo loan is any mortgage amount greater than $424,100 yet in high-cost areas a jumbo loan amount is anything higher than the high balance limit, or $636,150. For example, the conforming loan limit in places like Dallas, Phoenix, St. Louis, Tampa, Kansas City is $424,100 and is not considered a high cost area, which means a jumbo loan is anything greater than $424,100. In many parts of coastal California (Los Angeles, Orange, Ventura, Santa Barbara County, among others) the conforming loan limit is can be as high as $636,100. So any loan amounts that exceed this would be considered a jumbo mortgage.
The fact is these terms are not interchangeable but do describe real estate values in specific areas. Jumbo loan interest rates can be higher than conforming ones albeit by not very much. If you’re in a high cost area or you think you are and want to get a rate quote, it’s best to speak with a loan officer and describe your scenario. Many different 10% down and even 5% down jumbo loan options are available today for qualified buyers.
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