Understanding Jumbo Loan Limits
When you’re house hunting in the Bay Area, you’ll notice the sales prices can be quite high. According to Norada Real Estate Investments, in August 2021 the median price for a single-family home in San Francisco County was $1,850,000.
Given the stability of home values in general, a high selling price doesn’t make it impossible to get approved for a mortgage. However, the selling price does impact whether you need a jumbo or a conforming loan. Depending on your market and the lender, these types of loans may have different underwriting guidelines, so you’ll need to understand the limits.
Conforming vs. Jumbo Mortgages
What’s a conforming mortgage? It’s a mortgage that falls within maximum size limits established by the Federal Housing Finance Agency. In 2021, this limit was $548,250 for most of the U.S.
However, different markets can have vastly different price ranges and home values. For this reason, the limit on conforming loans can vary by county – for instance, in 2021, a conforming mortgage in San Francisco, San Mateo, or Marin County for a single-family home could be as high as $822,375, whereas in Sonoma County the limit is $707,250. In Sacramento County the limit in 2021 was $598,000.
Why should you pay attention to loan limits?
Lenders are often able to sell conforming mortgages to Fannie Mae and Freddie Mac (while continuing to service the loans). This can impact how strict the underwriting guidelines need to be.
Jumbo mortgages exceed the dollar limit for loans that lenders can sell to the government. Some advantages of higher jumbo loan limits compared to traditional loan limits include:
- More money to spend
- Ability to purchase a larger home
- Ability to purchase a home in the most desirable markets
The higher financing amount possible with a jumbo loan can get you where you need to be, but there may be stricter guidelines for approval.
Knowing the limits on jumbo and conforming loans in the county where you want to buy can help you know your options as you search for the best rates. The limits will vary based on the county and the type of property. Here’s a reference for the limits for 2021 for every county in California.
Jumbo Mortgage Requirements
Given the size of the loan, and without the option of selling the loan to Fannie Mae or Freddie Mac, jumbo mortgages can carry a higher risk for the lender. While requirements will vary depending on the lender, when applying for a Jumbo Mortgage, you might see stricter requirements than you would for a conforming mortgage, such as:
- Additional pricing adjustments based on FICO Score, loan-to-value, and property type
- Higher credit score requirements
- Lower debt-to-income ratio (which may depend on cash reserves)
- As noted above, additional cash reserves
- More extensive documentation
- Additional appraisals
- Higher down payments
- Higher closing costs
So when you’re evaluating your loan options, be prepared for additional requirements for a jumbo loan. However, this will vary based on the lender. SF Fire Credit Union loan officers can offer some flexible jumbo products based on the local market and risk.
Don't assume higher interest rates are inevitable
While you might assume that the risk of a jumbo mortgage would mean a higher interest rate, that’s not necessarily true. Rates can vary, so it’s important to shop for the best rates for jumbo loans.
Given the high prices for homes in many desirable markets in the Bay Area, it’s possible you’ll need a jumbo mortgage’s higher limits to get you over the threshold and into your perfect home. It’s important to be aware of the possible extra requirements you’ll need to meet for approval. Our Real Estate Officers have the local expertise to help answer questions you might have about whether a jumbo mortgage is right for you.