When you think of a jumbo loan, or jumbo mortgage, it evokes visions of luxury home buying, second homes, vacation homes, or maybe investors looking to purchase a multi-family unit to develop luxury condos or apartments. These days, though, a lot of first-time homebuyers in California are learning all about jumbo loans, because, in some cases, it’s their only option.
So, what exactly is a jumbo mortgage loan? It’s just what it sounds like – a bigger than average home loan. To be more precise, it is a home loan that exceeds the cap set for a particular area by government agencies that secure mortgages, like Fannie Mae, Freddie Mac or the FHA. Instead, these loans are backed by private companies.
The cap varies depending on the county, but in most counties, it’s $417,000. In California, however, due to the higher cost of homes in certain areas, the cap is higher. For example, in San Francisco and Los Angeles, the cap, also called the conforming loan amount, is $625,500. Even with the higher conforming loan amount, with average home prices over $1 million, many buyers, including first-timers, have to go with a jumbo loan, unless they can come up with the cash to make up the difference.
According to a recent report in The Wall Street Journal by Anya Martin, young, professional borrowers are compelled to buy, because rents are so high in certain areas. Buyers are willing to concede a slightly higher interest rate in exchange for putting less money down. Ann Thompson of Bank of America reports in the article that just under half of that lender’s jumbo loans in California during the first half of this year were to first-time borrowers.
There are other options in high-priced areas, like waiting it out to see if the agency that sets the conforming loan amounts, the Federal Housing Finance Agency (FHFA), will raise the limit soon, since it hasn’t changed in seven years. Or, homebuyers can look in areas outside the bigger cities, with average home prices that are much lower.
Whichever type of loan borrowers choose, one of the most important things to do in California’s competitive market is obtain a pre-approval. For more information on California jumbo loans, and to apply for pre-approval, visit GoldenStateMortgage.com.