For homebuyers looking to finance properties in high-cost areas, traditional conforming loans may not be sufficient. In such cases, high-balance mortgages and jumbo mortgages become essential financing options. While both loan types exceed standard conforming loan limits, they differ in terms of eligibility, pricing, and underwriting requirements. Understanding these differences can help buyers make informed decisions about their mortgage options.
A high-balance mortgage is a loan that exceeds the baseline conforming loan limit set by the Federal Housing Finance Agency (FHFA) but still falls within the high-cost area limit established for specific regions. These loans apply to counties where real estate prices are significantly higher than the national average.
High-balance loans are backed by Fannie Mae and Freddie Mac, similar to standard conforming loans, but they typically come with slightly higher interest rates and additional qualification criteria due to the increased loan amounts.
Jumbo mortgage loans exceed the high-balance loan limits and cannot be purchased by Fannie Mae or Freddie Mac. These loans are typically privately funded, meaning lenders take on more risk without government backing, which often results in more rigid underwriting standards than conforming loans.
Jumbo loans are commonly used for luxury homes, properties in expensive real estate markets, or buyers needing significant loan amounts beyond conforming limits. Typical requirements can include:
| Feature | High-Balance Mortgage | Jumbo Mortgage |
|---|---|---|
| Loan Limits | Above standard conforming limit but within high-cost area limit | Exceeds high-balance loan limits |
| Backed By | Fannie Mae & Freddie Mac | Private lenders |
| Interest Rates | Slightly higher than conforming loans | Often higher due to risk |
| Down Payment | As low as 5–10% | As low as 5–10% or more |
| Credit Score | 680+ (can vary by specific program) | 700+ (can vary by specific program) |
| DTI Ratio | Typically up to 45% | Often capped at 43% |
| Cash Reserves | May be required for some borrowers | Typically required for several months |
1. How do I know if I need a high-balance or jumbo loan?
If your desired loan amount falls between the standard conforming loan limit and your area’s high-cost loan limit, you may qualify for a high-balance loan. If your loan exceeds that limit, you’ll likely need a jumbo loan, which comes with stricter requirements.
2. Are interest rates higher on jumbo mortgages?
Yes, jumbo loans typically have higher interest rates than conforming or high-balance loans. This is because they carry more risk for lenders, as they are not backed by Fannie Mae or Freddie Mac. However, competitive rates are available depending on the buyer’s creditworthiness and financial profile.
3. Can I get a high-balance or jumbo loan with less than 20% down?
Yes, some lenders like First Savings have loan programs with low down payment options. Our high-balance loans and Jumbo loans may allow for down payments as low as 5–10%.
4. What is the difference in documentation requirements?
Jumbo loans usually require more extensive documentation, such as:
5. Can I refinance a high-balance or jumbo loan?
Yes, both loan types can be refinanced. However, jumbo loan refinancing often involves higher rates, stricter credit requirements, and more paperwork compared to high-balance loan refinancing.
The choice between a high-balance and a jumbo mortgage depends on your location, financial profile, and borrowing needs. If your loan amount falls within the high-balance limits of your county, you may qualify for a government-backed loan with competitive terms. However, if you need financing beyond these limits, a jumbo loan may be your only option.
Navigating high-balance and jumbo mortgages requires planning with your First Savings mortgage professional and careful consideration of requirements. Buyers will work with our experienced mortgage professionals to assess their eligibility, explore available loan options, and secure the best possible terms. Whether purchasing a primary residence or an investment property, understanding these mortgage types can help ensure a smooth home financing experience.
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