When it’s time to purchase your first home, chances are that you’ll be unfamiliar with much of the new mortgage terminology. In the unending lists of acronyms and long words, two of the most important terms are jumbo and conforming loans.
The terms jumbo and conforming refer to just how large your loan amount is. There are advantages to conforming loans but due to the housing prices in California many new home loans will be jumbo.
$453,100 is the maximum standard conforming loan in 2018. There’s high balance conforming loan amount depending on the county ($679,650 for San Francisco, CA) and borrowing over that amount is considered jumbo.
The requirement for a loan to be considered jumbo is its loan size, which varies from state to state as land prices vary; for example, Hawaii’s conforming loan limit is at $1,049,450.
Conforming loans have several advantages over jumbo loans. They not only are easier to qualify for, have lower down payment requirements and reserves, but also often offer lower interest rates.
Applying for a jumbo loan, however, requires a credit score of at least 680 due to the fact that it’s riskier for lenders to simply hand out such a large amount of money. As loan size increases interest rates and down payment amounts will rise, as with credit score requirements.
What this means to you
With many homes in California a jumbo type loan will be a good option, however if your loan amount is only a little above the conforming limit it may be worth increasing the down payment to take advantage of the conforming loans better terms.
Where can I find the exact conforming loan limits for my home?
HUD (U.S. Department of Housing and Urban Development) posts the loan limits by states and county. https://entp.hud.gov/idapp/html/hicostlook.cfm?CFID=145970&CFTOKEN=ef7ca5611f9c32b6-7F41E747-C1D3-2FEE-CE79721E66E646E1