Los Angeles Jumbo & High Balance Home Loans Explained

Jumbo loan options in Los Angeles have started to improve in recent months since the peak of the pandemic.  Most buyers are aware that interest rates increased last year, but seem to have stabilized in recent months. The good news for buyers is the median home sold price in LA is now $885,000 – down slightly since last year according to Realtor.com.

Before we discuss the latest options, let’s talk about the Conforming and Jumbo loan differences The conforming loan limit chart for all counties surrounding LA is listed below. Any mortgage amount beyond the limit below would be classified as “Jumbo”

*This chart is the current 2023 conforming loan limits for single (1) unit properties. Limits for multi-unit properties are higher. The complete loan limit list of all California counties can be found here. 

Non-conforming Jumbo loans have typically required at least a 20% down payment in the past, however, select lenders and banks are now offering high-balance financing up to 95 percent for qualified buyers. These programs have the option of a variety of fixed-rate or ARM terms and NO mortgage insurance. Available for both purchase and rate-term refinance.

Most of the programs employ a first mortgage up to the conforming loan limit, followed by a second mortgage to make up the difference. This combo loan structure allows the buyer to take advantage of the lower conforming loan interest rates and also avoid PMI, even with a lower down payment of 10% or 5%. These programs are especially helpful for first-time homebuyers with limited cash savings.

As of 2023:  95% financing up to loan amounts of $2mil. 90% financing is available to $3mil. Need assistance or want to learn more? Just call the number above, or submit the Quick Contact form on this page.

Los Angeles Jumbo Approval Process:

When lenders evaluate a loan application they really issue two approvals, not just one. The borrowers on the loan application will be approved by verifying income with paycheck stubs, W2 forms and income tax returns when needed. The lender will verify at least a two years work history as well.

Additionally, mortgage companies will review recent investment and bank statements verifying there are enough funds available for a down payment, closing costs and lender payment reserve requirements.

Credit is reviewed and credit scores are requested with the best interest rates reserved for those with a credit score of 720 or greater. As the borrowers are being approved, the lender is also busy making the second approval- the actual property. Your high-end real estate is the lender’s collateral and a lien is placed on the property until the jumbo mortgage is paid.

The lender must also determine if this collateral is similar to other properties in the neighborhood. If so, the property would be considered marketable, and should the loan ever go into default the lender wants to make sure they have a property that is similar to other homes in the neighborhood. In higher-cost sections like LA, the properties are generally more unique compared to traditional suburban developments where the buyers choose from a limited selection of spec home floor plans.

Jumbo appraisals will always garner a bit more scrutiny and even more so in the so-called “super jumbo” category where loan amounts approach $4-5 million.  Lenders can require two appraisals instead of just one to make sure the sales price is in line with recent transactions in the area. The appraiser compares recent sales and then assigns a price-per-square-foot valuation and makes adjustments based upon various differences between all the different homes.

For example, two houses both at 4,000 square feet on a similar-sized lot might have sold for $1,100,000 and $980,000 respectively. The differences? The first home has many upgrades when compared to the second.

As it relates to value, jumbo lenders use the lower of the sales price or appraised value to establish a loan amount. If the sales price of a home is $980,000 and the appraisal comes back with a value of $950,000, the lender uses $950,000 as the actual value which means the buyers must either renegotiate or come to the closing table with the additional $30,000 difference.

But what about the most expensive home in the area? What, after all the differences are considered, is the true value when one property has a contract on it for $1.8 million and the next highest recent sale is $1.5 million? That’s a $300,000 difference and the lender will want to know the justification for the higher sales price.

The most expensive property in the neighborhood technically doesn’t have any comparable sales and the ones used are less expensive. In this situation, the $1.8 million dollar price might be devalued to more truly reflect market values in the area. Remember, the lender wants to place a loan on a marketable property and the higher price must be justified with at least one or maybe two appraisals if the lender sees the need.

On the other hand, properties on the lower end of a luxury development benefit from the higher prices of other homes in the area, and values are often revised upward when homeowners apply for a refinance and a new appraisal is needed.

Your real estate agent understands what to offer and especially how to justify the price by first researching past sales and market conditions to make an offer high enough that the sellers will accept and low enough for your comfort zone. But it’s the most expensive homes in an area, any area for that matter, that are more immune to value downgrades based upon a lack of comparable sales.

Interested in learning more or have questions? Please contact us 7 days a week by calling the number above, or just submit the Quick Contact form on this page.