If you're in the market for a new home in California, you'll want to make sure you're familiar with jumbo loans. A jumbo loan is a mortgage that's larger than the conforming loan limit set by Fannie Mae and Freddie Mac. In most parts of the country, this limit is $647,200, but it's higher in California. So what exactly constitutes a "jumbo" loan in California? Keep reading to find out!
What is Considered a Jumbo Loan in California Contents Page
What is a Jumbo Loan?
Well it probably makes sense for us to take a look at exactly what a jumbo loan is and what makes a jumbo loan different from other types of loans and mortgages.
You might have heard of conforming loans, these are considered normal mortgage loans for financial institutions and credit unions. It is usually a lot easier for people looking to borrow and buy a house to meet the eligibility requirements of conforming loans.
Jumbo loans are mortgages that are above the conforming loan amount limits. They are too high (too big) for both Fannie Mae and Freddie Mac to guarantee the loan amount and provide insurance for credit lenders.
This makes a big difference as it can make the mortgage a lot riskier for mortgage lenders.
Freddie Mac & Fannie Mae are the two government-sponsored entities that help to keep the mortgage market stable by buying mortgages from banks.
As you can imagine, because of this added risk and also the fact that jumbo loans are usually taken out by wealthier borrowers, the interest rates on these loans are generally higher than on conforming loans.
The current limits for a jumbo loans are:
- $647,201 for a single family home
- $970,801 for single family homes in areas with above average house pries as defined by the FHFA.
Both California and Hawaii have higher limits before loans are considered jumbo loans. This is as they have cost of living and house prices that are higher than other states in the US.
What is Considered a Jumbo Loan in California?
So what is considered a jumbo loan in California? The current limit for a single-family home in California is $970,800. So if you're looking to purchase a home that's worth more than this amount, you'll need a jumbo loan.
Keep in mind that the limits are higher in some parts of the state than
What States in California Have Lower Jumbo Loan Limits?
The following California counties have a jumbo loan limit of $625,500:
Alpine, Amador, Butte, Calaveras, Colusa, El Dorado, Glenn, Humboldt, Inyo, Kern, Kings, Lake Lassen. Modoc Mono. Napa Nevada Plumas Shasta S
What Are Jumbo Loan Rates In California - Interest Rates & APR?
The interest rates on jumbo loans are usually higher than on conforming loans. However, the rates can vary depending on a number of factors, including the amount of the loan, your credit score, and the lender you choose.
It's important to remember that because jumbo loans are riskier for some lenders, you may not be able to easily get one.
At the moment, due to the strict eligibility requirements for jumbo loans, the jumbo loan rates in California are up to 1% cheaper than conforming loan interest rates. You're probably wondering why this is, right?
G-Fees (Guarantee Fees)
Unlike conforming loans where Fannie Mae and Freddie Mac add on additional fees for the loan guarantee, jumbo loans do not have any fees...as they are not guaranteed. Making them cheaper in some circumstances.
Financial institutions that provide jumbo loans are usually a lot more specific when they carry out jumbo loan home appraisals. They do this to try and ensure their loan is safer, de-risking their loan.
This means that they can occasionally offer lower interest rates on your jumbo loan mortgage
Strict Eligibility Requirements
As we mentioned earlier, the eligibility requirements for jumbo loans are much stricter than for conforming loans.
This is because there's a higher risk that the borrower will not be able to repay the loan.
So what do you need to qualify for a jumbo loan in California?
- Income: You'll need to have an income that is at least 2x your monthly mortgage payments before tax. Jumbo loan lenders always look a your debt to income ratio
- Credit Score: You will need to have a good FICO credit score or an excellent credit score, with no adverse marks on your credit history. The minimum credit score for a jumbo loan is 680. As usual, the higher your credit score is, the better your mortgage interest rates well be
- Reserve Requirements: Some jumbo loan lenders require you to have at least 12 to 24 months of mortgage payments available as reserves, after the close of the property escrow process
- Debt Ratio: Jumbo loan lenders look for a debt to income ratio (DTI) of between 30% to 50%
- Down Payments: Jumbo loans will usually require a higher down payment, 20% to 30% down is usually preferred for the best available interest rates
What is Considered a Jumbo Loan in Other States?
Jumbo Loans in New York
House prices in New York are considerably higher than in some other States in the U.S. A mortgage loan must be over $822,375 before is is considered a jumbo loan when you are trying to buy a house in New York.
Jumbo Loans in Florida
When compared to the jumbo loan limits in New York and in California, a jumbo loan threshold in Florida is pretty low. The jumbo loan limit in all counties except for Monroe County is $647,200. In Monroe County the jumbo loan limit is $710,000.
Jumbo Loans in Texas
The jumbo loan limit in Texas falls inline with other States in the US, including Florida. The jumbo loan limit in Texas is $647,200 and usually requires you to put down a 20% down payment to get most of the better loan interest rates.
Know Someone Who is Buying a House in California?
Do you know someone who could be buying a house in California and is wondering what their options are? Make sure you share this article with them so they can quickly learn everything they need to about what is considered a jumbo loan in California.