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High Cost Loans - Jumbo Loan Differences

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Many buyers researching mortgages for high-end real estate end up confused about some of the wording and description of loan programs. In fact, the lending world is somewhat famous for making up its own “lending terms" with its fair share acronyms, and nicknames. Furthermore, individual banks and lenders can even label their own version of loan programs that are really no different than other programs offered by another mortgage company.

The fact is that in most instances mortgage lenders approve jumbo loan applications using the same basic set of guidelines. Lenders can label a jumbo loan program something like “Platinum Jumbo” or some such to try and distinguish its loan programs from competitors.

Another set of terms that sound remarkably similar and can confuse potential borrowers is the difference between High Balance Conforming and Jumbo. At first glance, they do seem to describe the very same loan program but in reality, they’re not. Let’s explain.

High Cost Jumbo

Jumbo loans are referred to this way because the loan amounts are higher than a conforming loan limit. Conforming loans are those that “conform” to guidelines established by Fannie Mae and Freddie Mac. Lenders who approve loans using standards issued by these two mortgage giants have the ability to buy and sell conforming loans as long as the loans were in fact approved using these standards.

One of the guidelines for Fannie and Freddie is the maximum loan limit which was raised just this year for the first time in a decade. The conforming loan limit is currently $484,350 for 2019, up from $453,100. Any mortgage greater than that amount is referred to as a jumbo loan. Or is it?

There is another category called high balance conforming. High balance conforming loans are indeed conforming mortgages using Fannie and Freddie standard guidelines but the maximum loan amount is higher than in most parts of the country. So why do some areas have high balance conforming loans while most other areas do not? Fannie recognizes that median home values in some areas are much greater  (like California) compared to others and the median home price for the area typically exceeds the existing conforming loan limits.

In “high cost” locations Fannie and Freddie make allowances for these higher values with the high balance loan program. A high balance loan program will have interest rates just slightly above those reserved for the standard maximum loan limit. A high balance loan limit is at 115% of the median home price for the area with a maximum of $726,525.

However, a jumbo loan can actually be lower than a high balance loan in areas not deemed high cost. In these areas, a jumbo loan is any mortgage amount greater than $484,350 yet in high-cost areas a jumbo loan amount is anything higher than the high balance limit, or $726,525.

One example, the conforming loan limit in places like Orlando, Houston, Charlotte, etc is $484,350 and is not considered a high-cost area, which means a jumbo loan is any loan amount greater than $484,350.

In many parts of coastal California (LA, San Diego, San Fran, etc) the conforming loan limit is can be as high as $726,525. So any loan amounts that exceed this would be considered a jumbo mortgage.

If you’re in a high cost area and want to discuss all your options, it’s best to speak with a specialist. Today there are many low down payment 90% and 95% jumbo options for qualified buyers, read more on the Jumbo purchase page