What Type of Loan Works for You?
When you purchase a home you also need to shop for a mortgage loan. Should you look at conforming or jumbo loans? Can you qualify?
Conforming Loans
The first place to start is usually to find out what conforming loan rates are in your area. The underwriting guidelines for conforming loans are consistent with regards to things like minimum down payment, private mortgage insurance, debt-to-income ratio, minimum credit score and cash reserves required.
The maximum loan limit on conforming, conventional loans for 2022 is $647,200 for a single-family home in the San Francisco Bay Area. But is increased up to $970,800 for designated high price areas, (see chart) .
New Conforming Loan Limits
- Alameda – $970,800
- Contra Costa – $970,800
- Marin – $970,800
- Monterey – $854,450
- Napa – $897,000
- Sacramento – $675,050
- San Francisco – $970,800
- San Mateo – $970,800
- Santa Clara – $970,800
- Santa Cruz – $970,800
- Solano – $647,200
- Sonoma – $764,750
Fannie Mae and Freddie Mac loan limits are adjusted annually to keep up with cost of living. However, with rapid appreciation experienced in many markets, it may not be enough. When a conforming loan limit is not enough, qualified buyers can turn to a jumbo loan.
Jumbo Mortgage Loans
Jumbo loans are loans are for amounts greater than the FNMA maximum limits and are considered non-conforming loans. This allows lenders to set their own requirements on maximum loan amount, minimum required credit score, maximum debt-to-income ratio, and minimum down payment.
The rates paid on the jumbo loans may or may not be the same as conforming loan rates. Although it might sound logical that a larger loan would have more risk and therefore, always be priced higher. However, lenders do not sell jumbo loans to FNMA which saves them the guarantee fee normally required. This makes the jumbo loan more profitable. Therefore, we encourage borrowers to shop the rates.
A minimum credit score of 700 will probably be required to qualify for a jumbo loan, together with a debt-to-income ratio below 45%. While many borrowers seeking a jumbo may be putting 20% down, it is possible to find a lender who may only require a 10% down payment. Lenders may be more lenient with regards to mortgage insurance.
Lenders may also require six to twelve months of cash reserves due to the increased risk of the larger loan amount.
It is also a common practice for banks to make jumbo loans available in order to attract other business that the borrower might be able to influence, such as company, corporate, or investment accounts.
How Should You Decide?
Mortgage loans are just like available properties. There are many options to choose from. How each option affects you and your present and future financial status should drive your decision. It is always best to get expert advice when shopping for a mortgage loan. So, we recommend that you work with an experienced Real Estate Agent who can put you in touch with a reputable Mortgage Broker. If you need help, contact Sound Investments. We can help you by clearly outlining your financial objectives and determine what options are available for you.