In California, Higher Loan Amounts Do Not Always Equal Higher Interest Rates and Jumbo Pricing
When it comes to buying a home, most people want to get a good value – they want to buy a home they love while also staying within the parameters of their budget. In a state like California, where real estate prices are notoriously high, this can be a challenge. However, there are advantages to buying a home in California’s higher-priced market. Specifically, California’s higher loan limits mean borrowers don’t necessarily have to pay higher interest rates or obtain jumbo financing for their home purchases and refinancing.
Conforming Limits and Jumbo Loans
While it’s true, California has higher real estate prices than much of the nation, it’s not impossible for budget-conscious borrowers to find a house and a home loan they can afford – without having to apply for a jumbo loan.
For those who may be unfamiliar, jumbo loans are mortgages for homes that are priced above the limit for conforming home loans. Conforming home loans adhere or ‘conform’ to the lending standards set forth by Fannie Mae and Freddie Mac. Among those standards are loan limits. Currently, the limit is $417,000 for most areas. However, areas where real estate prices are higher, such as parts of California, the conforming limits are higher.
For example, in order to obtain a conventional mortgage in most parts of the U.S., your mortgage must be no more than $417,000 for a single-family home. If you buy a home with a mortgage that is above $417,000, you will most likely need to apply for a jumbo loan.
By contrast, if you were to buy a home in Sonoma County, CA, you could purchase a single-family home with a mortgage that is up to $554,300 without needing a jumbo loan. In Los Angeles County, the limit goes up to $625,500 before single-family borrowers need a jumbo loan.
Naturally, the more units a home has, the higher the limits will go. For example, in Santa Barbara County, the loan limits are $800,775, $967,950 and $1,202,925 for 2-, 3-, and 4-unit homes, respectively. Keep in mind however that these loan limits are subject to change. Speak with one of our loan professionals to get the most accurate and up-to-date information.
Why Jumbo Loans Cost More
Jumbo loans are a bit more expensive than conventional loans because they typically carry higher interest rates and require higher down payments. This is due to the fact that lenders generally consider jumbo loans to be higher risk, since they are for such a large amount of money. Fortunately for many California home buyers, jumbo financing isn’t a necessity, thanks to the higher loan limits.
FHA Loan Limits
In addition to higher conventional loan limits, many California counties have higher FHA loan limits. This means more California borrowers may be eligible for low money down FHA financing, even in higher priced markets.
In many cases, the FHA and conforming loan limits are the same, but this is not true for every county. For example, The FHA and conforming limits for Sonoma County, CA are both $544,300. But in Fresno County, the conforming limit is $417,000 and the FHA limit is $281,750. Again, these limits are subject to change so consult a mortgage professional for the most accurate information.
Priority Lending Mortgage Corp. is pleased to offer a wide selection of mortgage programs, including FHA, Conforming and Jumbo home loans. Talk to us today to explore the options and find a loan that works for you. Call our office at (707) 522-1887 or complete the form on this page to send us your information electronically.