Today at Estey we are talking to Alan Schwartzman, who is a lending professional with Advanced Mortgage, a division of American Pacific Mortgage. I have asked him to join us on our blog because one of the biggest questions we hear all the time from investors who need mortgages is: what’s the difference between a conforming loan and a jumbo loan? Alan’s going to tell us.
A conforming loan is the maximum loan amount that either Fannie Mae or Freddie Mac will purchase. This is important because Fannie and Freddie purchase around 75 percent of all the loans originated in this country. That number might go up or down a bit depending on which statistics you’re looking at, but obviously they play a big part in the mortgages people have. They current limit for conforming loans, which is always subject to change, is $417,000. Anything over that amount is considered a jumbo loan, depending on the county you live in. In high cost counties where real estate is generally far more expensive, there is a high balance loan that is between the $417,000 amount and whatever the high balance limit is for your particular county. The highest limit in the country is $625,000. This is how you establish whether you are applying for a conforming loan or a jumbo loan.
The reason why this is so important to property investors and anyone taking out a mortgage is that interest rates are going to be higher on jumbo loans. That’s something you’ll need to be prepared for if you are borrowing outside of the conforming loan limits.
It’s a little different with FHA and VA loans. For an FHA loan, there is a national limit of $417,000, but again, every county will have a high balance portion. There is no jumbo FHA loan available. Either it’s an FHA loan or it’s a high balance FHA loan. For VA loans, there is a national loan limit of $417,000, but you can get a loan up to a million dollars with your VA loan. In order to do that, you will need to make a higher down payment.
With a conventional loan, you can put as little as three percent down but you will have to pay mortgage insurance up to 20 percent. With an FHA loan, you will be paying mortgage insurance whether you want it or not. VA loans have a funding fee.
So, you have many options when it comes to the type of mortgage you get. Your interest rates may vary and what you put down may vary. This is why it’s so important to get together with your lender up front. You don’t want to be surprised down the road.
Thank you very much to Alan for clarifying this with us today, and if you have any questions or you need any information on sales, purchasing or lending, please contact us at Estey Real Estate and Property Management.