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Understanding a High-Balance vs. Jumbo Loan

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If you plan to finance a house with a significantly higher market value than other homes in your area, a high-balance loan or a jumbo loan may be in your future. Which type of mortgage applies to you depends on the home price and your location, and how both of them relate to lending limits set annually by the federal government.

What is a high-balance loan?

A high-balance loan is one that exceeds the national baseline conforming loan limits, but falls within the local conforming loan limits for your high-cost county. High-balance loans are considered conforming loans with respect to Fannie Mae and Freddie Mac (Freddie Mac refers to them as “super-conforming loans”). Lending requirements for conforming loans include:

  • You must have a credit score of at least 620 depending on your down payment size and cash reserves.
  • You must make a down payment of at least 5% of the home’s appraised market value.
  • Your debt-to-income (DTI) ratio — the percentage of your monthly pretax income required to cover the mortgage payment and other debts — cannot exceed 45%.

Qualifying for a high-balance loan from Fannie Mae comes with a couple of extra stipulations that don’t apply to standard conforming loans:

  • All loan applicants must have credit scores. Standard conforming loans allow for a process known as manual underwriting, which evaluates an applicant’s creditworthiness even if they lack credit reports needed to obtain a credit score. Fannie Mae uses an automated system that requires all high-balance loan applicants to have credit scores.
  • High-balance loan borrowers don’t have access to Fannie Mae’s 3% down-payment loans.

What is a jumbo loan?

A jumbo loan is any mortgage for an amount greater than the conforming loan limit that applies to your county. For most of the country in 2021, the limit is $548,250. In pricier counties, the limit is $822,375.

Unlike high-balance loans, jumbo loans are non-conforming loans that are ineligible for purchase by Fannie Mae or Freddie Mac. You’ll have to get your jumbo loan from a large bank or qualified online lender. Because jumbo loans aren’t constrained by Federal Housing Finance Agency lending requirements, lenders have wide leeway to set eligibility requirements and lending terms. In contrast with conforming loans, it’s possible to get jumbo loans for all sorts of properties, from high-rise condos to log homes, depending on the lender.

Jumbo loan rates vary widely and frequently, and in recent years have sometimes been lower than those for conforming loans. In May 2021, APRs on $1 million, 30-year fixed jumbo mortgages in greater Minneapolis ranged from just under 3% to 3.32%. During the same time, the national average on a 30-year fixed-rate conventional mortgage was 2.94% at the time of this writing, according to Freddie Mac.

Comparing high-balance vs. jumbo loans

Comparison of high-balance vs. jumbo loans
High-balance loan Jumbo loan
Geographic availability FHFA-designated high-cost counties All U.S. states
Maximum loan amount (2021) $822,375 Unlimited, except by lender policy
Minimum loan amount (2021) $550,850 $548,251 for most of the U.S.; $822,376 in high-cost areas of the country.
APR
(30-year fixed-rate loan)
2.94% (national average) 2.97% -3.19%
Loan eligible for purchase by Fannie Mae or Freddie Mac Yes No
Minimum down payment requirement 5% of appraised market value 20% of appraised market value (but lenders have wide discretion)
Minimum credit score 620 Varies by lender, but typically 680-700 or above

Similarities: High-balance loans vs. jumbo loans

While the distinctions between high-balance loans and jumbo loans are significant, both loan types share these general traits:

  • Both high-balance loans and jumbo loans are mortgage loans for properties with above-average prices in their respective real estate markets.
  • Lenders that issue high-balance loans and jumbo loans may consider those loans riskier than conventional loans, and may charge higher interest rates because of it.

Differences: High-balance loans vs. jumbo loans

The differences between high balance loans and jumbo loans are technical but important:

  • In contrast to jumbo loans, which can be issued anywhere in the country, high-balance loans are available only in counties the FHFA designates as “high cost.” High-balance loans can be issued in amounts that fall between the local limit ($548,250 in 2021) and the national high-cost limit, which is $822,375 in 2021. High-cost areas are found in 18 states and the District of Columbia.
  • High-balance loans are considered conforming loans by the FHFA, which means Fannie Mae and Freddie Mac can guarantee them. Jumbo loans are non-conforming and ineligible for purchase by Fannie and Freddie, which makes them riskier for lenders.
  • Because they are conforming mortgages, lenders that issue high-balance loans must adhere to FHFA eligibility guidelines. Lenders are free to set their own eligibility requirements on jumbo loans, and lending terms can vary widely as a result.

FAQs about high balance vs. jumbo loans

Where can I get a high-balance loan or jumbo loan?

High-balance loans and jumbo loans are issued by traditional housing lenders, including banks, credit unions and other financial institutions. Fewer institutions offer them than issue traditional home mortgages, however, so you may need to check lender websites for their availability when identifying where to apply for the loans.

Do I qualify for a high-balance loan or jumbo loan?

It depends on how your income, debt and credit match up with a lender’s requirements. Issuers of high-balance loans must conform to eligibility requirements spelled out by the FHFA, but jumbo loan issuers have greater leeway in deciding who qualifies for a loan, and what they require in terms of credit score, down payment, fees and interest rates.

What is a ‘super-conforming’ loan?

A “super-conforming loan” is another name for a high-balance loan. Fannie Mae and lenders who chiefly sell their mortgages to Fannie Mae tend to prefer the “high-balance” terminology, while Freddie Mac and lenders who sell to it lean toward “super conforming.” Both denote loans in amounts that exceed the FHFA’s national baseline conforming loan limit but fall within the maximum conforming loan limit for a county the FHFA designates as a high-cost housing market.

Why aren’t high-balance loans available in my county?

High-balance loans are available only in counties that the FHFA designates as high-cost housing markets. In counties that are not designated high-cost markets, any loan in an amount greater than the national baseline conforming loan limit (which is $548,250 for 2021) is considered a jumbo loan.

Which is better, a high-balance loan or a jumbo loan?

Which loan is better depends on where you live and how you match up with a loan’s requirements. In many (but not all) areas of the country, interest rates and eligibility requirements are lower on high-balance loans than they are on jumbo loans, which may make them preferable.

Jumbo loans often carry higher income and down payment requirements and can carry higher interest rates than high-balance loans. However, lenders have more leeway for jumbo loan rates and terms than they do with FHFA-regulated high-budget loans. That means you may be able to negotiate more favorable terms.

 

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