Jumbo loans are one of the best options when it comes to real estate that has prices higher than federal limits allow for conforming loans. While conforming loans are limited in amount due to being back by the government, jumbo loans are provided through private lenders meaning that regulations that limit loans through groups such as Fannie Mae and Freddie Mac no longer apply.
What Are Loan Limits?
Loan limits encompass the rates and amounts that can be offered on a home loan with the latter being the focus. Each loan limit is based on county, with conforming loan limits being $822,375 for most Bay Area counties for 2021. Once the loan amount exceeds this limit, it’s viewed as a jumbo mortgage and is no longer eligible to be borrowed through a government enterprise.
Finding Specific County Limits
How much you can borrow before a conforming loan turns into a jumbo loan will change county to county. The Federal Housing Finance Agency, or FHFA, provides a regularly updated map of each county and their individual limits. You’ll notice that most of the US has a limit of $584,250 with the more popular coastal regions being the areas with more wiggle room.
It’s important to remember that getting a jumbo mortgage instead of a conforming one will be more difficult when it comes to the qualification process. Since lenders don’t have government-backed loans to provide at these larger amounts, they take on substantially more risk with every new jumbo loan drawn up. You’ll need strong credit, stable and reportable income as well as extra assets including liquid cash and shares or stocks that you own for publicly traded companies.
Why Jumbo Loan Limits Change
Typically you’ll only need a jumbo loan when it comes to luxury real estate or larger-than-life houses that have more square footage than needed. The limits that Fannie Mae and Freddie Mac adhere to are based on analysis of the cost of living in the area and then a little extra to help secure homes at median prices. If the median price is higher in a county, then the limit before a loan turns into a jumbo loan will be higher as well.
Be Aware of Possible Discrepancies
One consideration to make is that changes in government bodies aren’t always fast enough to keep up with changes. Areas that already have high population can quickly become the next county to see an increase to median housing prices if there is a wave of new residents flocking to the area.
For example, if Sacramento County which has a conforming loan limit of $598,000 started seeing large numbers of new home buyers then the median price will begin to rise. If it breaks $598,000 then new buyers will either need to have a large enough down payment to bring the total loan amount down or go with a jumbo loan instead.
Figuring out which option is best for you and your current financial situation takes an experienced professional such as any of the members on the Potempa Team. We would be honored to help you along your home purchase journey to help you stay on budget and on schedule so please don’t hesitate to get started with us when the time is right!