Each new year brings many changes and the mortgage industry is no different. Lending guidelines change frequently and one of those early-notice changes is the new conforming mortgage loan limits that take effect on January 1 of each year. For 2020, the conforming loan limit for a one-unit, single-family home will be $510,400 San Bernardino County, up from $484,350 in 2019. This loan limit mirrors most of the country.
However, many more expensive counties in CA like Los Angeles and San Diego have much higher conforming loan limits, in some cases up to $765,600. Keep in mind that higher limits will also apply to a duplex, triplex and fourplex properties.
Bonus: Borrowers can see the complete county list of California Conforming Loan Limits provided by Bankrate.
What, exactly is a conforming loan and when it loan considered a high-cost Jumbo? A conforming loan is one that meets the guidelines issued by Fannie Mae and Freddie Mac. This is important because the more competitive mortgage rates are generally reserved for conforming loans. By far the most popular among residential borrowers, nearly two out of every three mortgage loans made follow these guidelines.
When Do Buyers Need Jumbo Financing?
Borrowers purchasing more expensive homes in CA will take generally out a jumbo loan. A jumbo loan is one where the loan amount exceeds the conforming loan limits listed above. As stated, a jumbo loan is a loan amount exceed the prevailing conforming loan limits of $510,400 in most parts of the country. There are also areas where home values and limits are much higher compared to other parts of the country. This means a conforming loan limit can be higher in places such as San Francisco compared to homes located in Fontana.
Such areas are labeled “high balance” but still fall into the conforming category and eligible for sale in the secondary markets because they meet guidelines established by either Fannie or Freddie. In these geographic areas, a mortgage will be labeled jumbo if the loan amounts are higher than prevailing conforming limits.
Jumbo loans follow basically the same set of approval guidelines as other mortgage types, but they are slightly more restrictive for approval. Most jumbo loans will require a down payment of at least 10% of the sales price of the home. However, some new options today also permit finance up to 95% for California buyers. Lenders generally provide slightly better terms and flexibility with a 20%+ down payment.
Conforming loans only require a down payment of 3%-5% of the sales price. Of course, when the loan amount is greater than 80% of the value of the home, private mortgage insurance, or PMI, will be required. An additional PMI payment increases the overall monthly mortgage payment for a borrower but still preserves borrower assets. With a jumbo loan, there is no private mortgage insurance even for loans exceeding 80% loan to value.
The credit score requirements for jumbo loans can also be higher. Conforming loans only requires a minimum credit score as low as 580 whereas a jumbo loan can require a minimum credit score to be 650-680 or even higher.
Note: exact credit scores will depend on down payment and loan amount desired. Please see the complete chart on the Jumbo Purchase page.
Jumbo guidelines set by banks and lenders are typically “verified” which means income, assets, employment and other aspects are verified through third parties. When higher jumbo loan amounts are needed, standard approval guidelines will be followed. This includes debt to income ratio limits, etc.
Jumbo loans can also be refinanced from one loan to a new one. Or, with the new higher loan limits, borrowers with existing jumbo loans may be able to refinance into a conforming loan resulting in a lower loan amount and a slightly better interest rate. When considering a jumbo loan for a purchase or refinancing, contact us to review all the options. Please call or just submit the Quick Contact Form on this page.