If you are here on this page, it means you have a question on a loan, you are interested in this question; What is a jumbo loan in California? we will explain in detail what it means.
Let’s start with the basics.
California is popularly known for its breathtaking landscapes and vibrant cities, with a vast diversity in the real estate market with properties such as beachfront bungalows, and sprawling estates in Silicon Valley.
You might have gotten to hear the term “jumbo loan” if you are considering getting a home in the Golden State, this will lead us to explain what is a Jumbo loan in California and what it means for you.
What is A Jumbo Loan in California?
A jumbo loan in California is a loan amount that exceeds the conforming loan limits established by the Government body known as the Federal Housing Finance Agency (FHFA).
A jumbo loan was created as a conventional (not government-backed) mortgage loan, meaning that jumbo loan does not follow the loan limit set by the FHFA, so they are not eligible to be bought by Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac.
These GSEs set these limits to standardize mortgage lending across the country and promote liquidity in the secondary mortgage market simultaneously.
Conforming limits on loans can be too restrictive, especially in high-cost areas like California where estate prices are often skyrocketing, that’s where you get to use jumbo loans.
As of 2022, the conforming loan limit is $970,800 for counties situated along the California coast and the San Francisco Bay Area. So when you see a loan that crosses the mark of $970,800 you should consider it as a jumbo loan. Other counties have lower jumbo loans, counties as San Joaquin County, and Solano County.
Why are Jumbo loans important in California?
In 2021, the baseline conforming loan for most counties in the United States was $548,250, this might be much for some homebuyers but when it comes to California’s major cities like Palo Alto, Los Angeles, or San Francisco it’s not much.
As we mentioned earlier, California is an expensive place to be, with estate prices always on the high, you can barely get a house for $548,250 which is the baseline of conforming loans.
What is the right Jumbo Loan Amount or Limit in California?
There is no specific jumbo loan amount in California, it all depends on the county where your home is situated.
Using this link you will see the conforming loan limits for counties in California. There you can also check specific loan limits using just your zip code and county, it is that easy.
If you find any loan amounts exceed these county loans, you are to consider them jumbo loans or mortgages.
Borrowers trying to get mortgage loans should be ready as jumbo loans have strict requirements, this is because there is a higher risk attached to a larger loan amount. If you are a borrower looking to apply for larger mortgages you must have a good credit score, stable income with evidence, savings, and a low level of debt.
Jumbo loans are somehow related to the home purchase price, this is because jumbo loans are given to help you purchase your dream house crossing the normal loan limits. Depending on your country, the jumbo loans are high and help cover the properties you set to acquire accordingly.
Key characteristics of Jumbo Loans in California
Jumbo loans in California are loans that exceed the conforming loan limits. The exact loan amount is decided based on the county, it can range from $650,750 to over $970,800 or more.
It is very important to know that jumbo loan requirements are stricter than a conforming loan. To make use of a jumbo loan for a larger purchase you must have a good credit score and meet other financial requirements to ensure repayment.
Due to the larger loan amounts involved in this, lenders are always requiring a high amount of down payment before you take a jumbo loan. The reason is that there is a higher risk for lenders, given the size of the loan.
For every loan you take, you are required to submit proper documentation when applying for a jumbo loan. This is needed by lenders to verify your capacity to get and pay back such a huge loan amount. Some things needed to verify your financial stability include income statements, credit history, tax returns, etc.
Depending on your loan source or lender, jumbo loans can offer more flexibility in terms of property types and loan terms. You’ll find this helpful as a borrower that has unique financing needs.
Local Real Estate Markets
Depending on your county estate market rate, jumbo loans can help you buy moderately priced homes even in California’s pricier areas. There are times you might actually need to use jumbo loans even when you have conforming loans available to you.
What are Jumbo Loan Rates like in California?
Jumbo loan interest rates in California are most of the time lower than conforming loan rates, it is around 1-2% lower depending on some circumstances. We’ll quickly talk about the benefits to you.
Guarantee fees popularly known as G-fees are the additional fees added to your loan when you take conforming loans (Fannie and Freddie), this is to cover their guarantee which means higher rates for you as a borrower. With Jumbo loans, you have no need to pay G-fees.
As much as a jumbo loan is involved, there is this option of taking up a loan safely when compared to conforming loans this is because jumbo requirements are stricter with credit history, and debt ratios, and require down payments.
Some jumbo lenders can give up to 12 months of property repayments and then be available as reserves after the close of escrow while conforming loans rarely require no reserves.
There is also a strict view on appraisals for jumbo lenders, this is to the advantage of borrowers as the loans offered are much safer. This means there is nothing regarded as appraisal waivers and jumbo lenders must review the appraisal to strike a deal.
In the hope that your question on |What is a Jumbo loan in California” is answered, there are some lenders that allow you to pay a down payment of as little as 10-11%, although this depends on certain factors.
Before making the decision to get a jumbo loan, it is important that you assess your financial capability or might as well hire or consult a mortgage professional to guide you through how California’s real estate works. That being said, make sure to be on the safer side.