Conforming, High Balance, Or Jumbo: Which Loan Are You?

Auto-generated captions cleaned for readability. Sponsor messages, commercial breaks, and repeated housekeeping have been trimmed; licensing information appears at the bottom of this page. Debbie's two guests are senior loan officers on the Mortgage Mom Radio team and are credited here by role rather than by name. Listeners who asked questions are identified by first name only.

The limits were announced yesterday

Debbie: Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, I'm the Mortgage Mom, and today we're talking all about how Fannie Mae and Freddie Mac came out and announced the new loan limits. For this segment I've brought on two of the loan officers on my team — both experts in the mortgage field, both in the business many years. They're going to talk to you about the new limits: how this benefits you, how it changes your lending, how it can help you get into a higher sales price or qualify a little more easily. And I love that I'm not on camera today.

The limits were just announced yesterday — new loan limits for 2023. How crazy is it to be talking about 2023 already? I can't wait for FHA to make their announcement; we'll do another one of these when they do.

Before we get into it, a question came in asking what the current interest rate is, and that's very hard to answer, because every loan is different: every person, every credit score, every property value, every down payment, every refinance with a different amount of equity. But rates have improved a bit — we've seen a nice improvement. If you're buying right now and negotiating with the seller to pay a couple of points for you, I just locked a client on a VA deal at five and a half percent. We've locked a couple of conventional clients in the mid sixes, definitely low sixes. I had one where the seller paid three percent and we got them down to 5.875%. So rates can be very good. It's about negotiating — and if you're not sure what you should be doing, call us first so we can get you pre-qualified and get you to a real estate agent who will negotiate the right deal.

From $647,200 to $726,200

Debbie: Let's start with the national number, not counting high balance or high cost. What is the current Fannie Mae and Freddie Mac conforming loan limit?

Guest: $647,200.

Debbie: And where are we moving to?

Guest: They're increasing it to $726,200.

Debbie: That's a huge jump. And this matters everywhere — the show is on YouTube and Facebook, it's national, not just where I'm sitting in California. Whether you're in Houston or San Antonio, Nashville, Arizona, Las Vegas, Seattle. So talk about how this helps people.

Guest: There aren't many high-cost areas in Tennessee. Some counties here have a high-cost designation but it's nothing compared to Los Angeles — the base was $647,200 and LA's high cost went up to around $970,000, whereas some counties here only went to $650,000 or $672,000. So when I was looking for a house myself with only five percent down and couldn't qualify for a jumbo loan — anything over the conforming limit — I was stuck at a certain price range. If anything was listed just above it, I'd either have to put more money down or find a different house. So this is huge for us here, because we don't have a lot of high-cost areas, and even where we do they aren't extreme like LA, Ventura, or Orange County.

Guest: For us in Los Angeles and the surrounding areas it's a bit different. Say you're looking at a $750,000 home and you want to put five percent down. That's a loan higher than $647,200 — so we either have to take you into a high balance loan, where the rates aren't pretty, or if we don't have that option, into a jumbo. And jumbo can be very hard to fit into, because they're borrower-specific: whether you're self-employed or W-2 can make a big difference.

What it means now is that on that same $750,000 house with five percent down, we can go up to $726,200 and do it as a conforming loan, instead of high balance at a higher rate or a jumbo. It's opening up that loan amount for people who couldn't purchase before. And let's face it — in California, in Arizona, certainly in Washington, $750,000 is not an unreal number.

What high balance and high cost actually mean

Debbie: Explain what high balance is, what high cost means, what those numbers look like, and who gets them.

Guest: High balance is anything over the conforming loan limit in a high-cost area, where that county allows you to go up to a certain higher amount. Los Angeles, Orange County, and San Diego are examples of high-cost areas. They just announced that in Los Angeles the new high balance limit is $1,089,300. Riverside and San Bernardino unfortunately are still not considered high cost, but at least they went up to $726,200.

I did some math on this. For Riverside and San Bernardino, with the new conforming limit of $726,200, you can get a conventional loan with right around five percent down up to a purchase price of about $764,000. When FHA eventually comes out with their new limits — and they always follow behind Fannie and Freddie — at three and a half percent down you're looking at a purchase price around $752,000. So in San Bernardino and Riverside that opens people up a lot, because before we were limited around the $650,000 to $660,000 range. People now have about a hundred thousand more of purchasing power in those lower-cost areas.

In Los Angeles, going up to a million, they really needed that considering how expensive everything is. Orange County too — the high balance limit is $1,089,300 in both. San Diego County is $977,500. Ventura went up to $948,750. I do think Ventura should have gone higher — everybody loves a house by the beach, and they're not going to get much under a million by the beach. For Washington, that's King County, and they're a little higher: $977,500. It can be super expensive in Seattle, and a lot of people I talk with there have homes at a million and over.

Debbie: So here's what everybody needs to understand. There is always the national number, the conforming loan limit, which went from $647,200 to $726,200. Everybody across the country got a huge raise in what we can lend you without having to go to jumbo. Then, in high-cost areas, there's the high balance limit. If you go over the national number you get into what we call a high balance or high cost loan — another term for it is a jumbo conventional, because you're in a tweener stage. You're in between the conventional number and where you'd have to go for a jumbo loan.

And that tweener number gives you tweener rates. That's the best way to explain it. You definitely get a bump in interest rate when you go over the conforming limit and you're in that middle section. So what it means now is that we don't have to go to that high balance number as fast as we did before. Where we were stuck at $647,200, now we're good all the way up to $726,200, and we're still giving you the lower rate.

Jumbo versus conforming on an $800,000 purchase

Debbie: Say somebody wants to buy at $800,000. If they had to go jumbo, how much would they need down? If they can go conventional, how much?

Guest: On a jumbo, I'm fairly sure you have to put at least ten percent down, and let's go with a basic twenty. And reserves — people ask what a reserve is, and it just means you have to show money in an account somewhere, enough to make that mortgage payment for about six to twelve months, liquid.

The other thing with jumbos is they're a little stricter on your credit score, and a little stricter on debt-to-income ratios and loan-to-value ratios. For me a jumbo is just an all-around harder loan to get than a conforming. Conforming is more forgiving on your credit score, and it'll allow slightly higher ratios — and sometimes that little tweak makes all the difference.

Debbie: So at $800,000 with a jumbo, twenty percent down is $160,000 — and that's before closing costs and before reserves. Now with the increased limits, and using the national conforming number rather than a high-cost area: what's the difference between $800,000 and $726,200?

Guest: $73,800.

Debbie: So $73,800 versus $160,000. As a percentage of $800,000, that's a bit over nine percent. So at nine percent down you can now get into an $800,000 sales price, where jumbo financing typically requires twenty percent. And no reserves. And a lower credit score is acceptable, and higher debt ratios. There's a real benefit there.

Now, for our Seattle listeners — King County's high balance number is $977,500. So somebody in Seattle could put five percent down with a conventional loan on that $800,000 house and never go near jumbo, where somebody in Tennessee or Arizona, with no high balance in their county, would have to cover the difference between $800,000 and $726,200. So if you're wondering how much cash you need: it depends on where you live and what county you're in. Which is why we really do need to talk to you.

And it isn't automatic that conforming wins. If you have a low debt ratio, twenty percent down, reserves in the bank, and a great credit score, the high balance rate might actually be higher than a jumbo rate — so we may opt to put you in the jumbo, because you'd get better pricing, a better rate, and a better monthly payment.

Why the limits rose 12% in a market that was cooling

Guest: They take these limits and increase them to keep them in line with the housing market. What I found interesting is that even though the market has lost some pricing in the past five months, they raised it about twelve percent, because the housing market is still up twelve percent from where it was last year. That was kind of crazy to me, because we all talk about how slow it is and how prices are dropping.

The big thing people don't understand is that we are so underbuilt. We just don't have enough units in the United States to go around — it doesn't matter if you're in Los Angeles or Seattle or Nashville or Arizona or Vegas. So the fact that prices are still higher than last year, and this comes in and says to home buyers and to people refinancing that we're going to balance these out and let you use more loan amount at better rates — that's a great thing.

Guest: The market goes in waves. Right now we were at a high and we're going to come down a little, and then we'll go right back up again. I've never seen it, in thirty-plus years, go down and stay down. It's always rebounded — it's just the amount of time it takes to get there. And right now we simply don't have the housing units.

Debbie: I do think values come down a bit. But the appreciation has been so big that even with drops of twenty or even thirty percent we'd still be well above where values were in 2019 and 2020. So there aren't going to be many people who end up upside down. I don't personally see a ton of foreclosures coming. If you bought in 2020 or 2021 with minimum money down you may end up a bit upside down, but not far enough that it's like 2007 to 2009, where people were walking away. It doesn't make sense to do that when it's your home, you've got the write-off, you have everything you need.

Guest: And people have to remember that in 2007 and 2008 we didn't have the shortage of rentals we do now. There are a lot of people renting. And when investors buy these properties, they're buying at the same price you would — so their mortgage payment is about the same, which keeps rental rates up as well.

A client who saved half a point on the change

Guest: Here's how this actually benefited a client. I have a buyer pre-approved with a $660,000 loan amount and forty percent down, looking in Los Angeles. Even in a high-cost area, a $660,000 loan amount was high balance. With the increased limit she's now conforming, so her rate dropped — I want to say half a point, plus we've had a little rate improvement lately. And it means she can go higher in her loan amount and put thirty-five percent down instead of forty, which puts money back in her pocket. Win-win.

Debbie: And that's the part consumers don't see: the difference in rate between regular conforming and the tweener loans is really about three eighths to half a percent. So if you're going from 6.5% to 7% — or go back three weeks, when we were at seven or seven and a half — that's real money. If you were recently pre-approved and your loan officer was talking to you about rates in the sevens, call them back, or call us and get re-approved and get something locked in. Rates definitely dropped. And imagine how much higher she could go on the same down payment, just because the limits changed.

Q&A from the live chat

Catherine asks: “Is there a way to get a loan with a 1099? I have a family member in another state who was told her income wouldn't count toward being approved — she hasn't been 1099 for two years.”

Guest: I believe so, as long as you're in the same industry you were in before. If you were W-2 doing consulting and now you're 1099 doing consulting, we can generally use that, because you have the history of it. And we have 1099 programs, bank statement programs, asset depletion programs if you have money in the bank, and depending on the state, community mortgage programs.

Guest: I did a loan last year for an occupational therapist who was W-2 for many years and decided to go out on her own. We had her 1099s and I believe we used just the year. So it depends on the loan type and amount — are we in conforming or jumbo — and on the specific scenario. A brand new industry for her would be tougher. Have her call us.

A listener asks: “If I find a house for $700,000 but I'm putting down $150,000, would this still be a conventional loan, or is it based off the purchase price?”

Guest: If you're buying at $700,000 and putting $150,000 down, the loan amount is about $550,000. So you're well below $726,200 — you'd definitely fit in the conforming rate and go on your merry way. As long as your loan amount is $726,200 or below you fit. At $724,000 you fit. At $727,000 you don't, and you'd have to put a little more money down to get under it.

Debbie: Although — even with a really big down payment, we'd need to know your credit score. Maybe you're a vet and VA is better than conventional. Maybe your credit score isn't great and we need to talk about FHA. Every person is a little different in which program and product suits them.

Michelle asks: “What is a $750,000 loan — conventional or a tweener?”

Debbie: If the loan amount is $750,000, not the sales price, and you're in a high balance or high cost area, then you're a tweener loan. I love that phrase, I'm going to start using it — I've literally just renamed high balance, but it makes more sense and it's easier to understand. If you're in an area that does not have a high balance loan limit, a $750,000 loan amount would be a jumbo. So we have to know where you're looking to buy to answer the question.

Michelle also asks: “Do different lenders use different DTI ratios, or is there a minimum standard?”

Guest: FHA and conventional have different debt-to-income ratios, but respectively they should be the same — following the guidelines, they shouldn't vary lender to lender.

Guest: It also depends on what investors each lender has. Banks or credit unions can be a little different, because they have to adhere to their own guidelines and overlays. With our company we have a lot of investors on the back end, so we can do things in house. Standard Fannie and Freddie is pretty much the same across the board, but then you have overlays, other brokers, other programs.

Debbie: They were both right — the answer is yes and no. Every lender doing conventional Fannie Mae or Freddie Mac financing follows standard guidelines written in a book that we all have to follow. On top of that, lenders choose whether to add overlays. A big bank might say that even though Fannie Mae will let us go to 50% on the debt ratio, we don't want those loans, so our overlay is 45%. I'm not saying that's what any particular bank does — it's just an example. Then another lender does it differently, and another differently again. Every individual lender can choose what it feels comfortable writing.

We're a mortgage bank, so we have multiple investors we can place your loan with. We're direct with Fannie and Freddie, so if we need to go direct to get the full book guidelines with no overlays, we can. Or we can look across all the different lenders that offer financing and pick and choose where you fit and who has the best rate that day. If you have a 47% debt ratio, we have to put you with a lender that doesn't care about 47 — you're limited on which investors will allow it, and then we pick the one with the best rate. If you're an A-plus borrower, we just go to whoever has the best rate that day and their overlays don't matter.

Michelle asks: “You said reserves are sometimes required — not always?”

Guest: Typically reserves are required on jumbo loans. On a conventional purchase they don't care about reserves as long as you have enough for your down payment and closing costs — enough to close the loan. There are instances on certain programs, like a cash-out refinance where you're trying to reach a certain debt-to-income ratio, where we look for reserves to qualify you. But on a regular conventional or FHA or VA purchase, as long as you have funds to close, reserves don't matter.

So: jumbo, yes. Conventional purchase, no — unless it's a purchase for an investment property, in which case yes, even conventional. And on a cash-out refinance where you want to go over a 45% debt ratio, on Fannie Mae yes, you need reserves; on Freddie Mac it depends on whether the automated decision asks for them, so that one is truly up to the system.

Buying the rate down with the seller's money

Guest: Whether you're refinancing or purchasing, understand that if you're purchasing, the seller can help you buy the rate down. If you're at six and a half and you really want to be at six and a quarter, or six, or lower depending on where rates are that day, you can ask the seller in your contract to help you buy that rate down, and the seller can bring in money to get your rate lower. Same idea applies to a refinance — buying the rate down is always an option available to you.

So don't just hear six and a half or seven and stop. There's definitely flexibility in there, and we'd love to talk with you about it.

The multi-unit limits

Guest: There's one thing we didn't talk about at all. Everything we've covered has been single one-unit properties — a single family home or a condo. But the two, three, and four unit limits increased as well. Nationwide, the two-unit went up to $929,850, the three-unit to $1,123,900, and the four-unit to $1,396,800. In some high-cost areas the four-unit limits went over two million.

And this doesn't mean you have to buy it as an investment property. You can buy it owner-occupied, live in one of the units, get a conforming loan, and rent out the other units to help the property pay for itself.

Debbie: One thing people should know: when you start buying multiple units, the down payment requirement changes. It's no longer five percent down on a two unit — bigger down payments are required even for owner occupied, depending on whether it's two, three, or four units. So you'd have to call us to talk about what you'd need. But it's definitely easier than trying to get a jumbo loan on a four-unit property at two million dollars.

Michelle asks one last one: “How much higher is an investment rate than a homeowner rate, and do different lenders give different investment rates?”

Debbie: Every lender's rate is going to be slightly different, but no lender should be off by more than about an eighth to a quarter of a point — a very small amount — if the program is exactly the same. Some lenders have programs others don't. As for the gap, it's probably about a point to a point and a half higher for an investment property over an owner-occupied rate. But if you're looking at a debt service loan or a bank statement loan or another investment product that isn't a normal conventional loan, that's going to be much more than a point or a point and a half.

So you've got to call us and let us answer those questions for you, because there are so many loan programs and so many things that change what the rate would be based on the borrower, the scenario, the property, the county, and the area. We're definitely not a show that says call us now, rates are 2.99%. I've never been that show, even when rates were 2.99%, because everybody is a little bit different and there's no cookie-cutter rate that belongs to everybody.

Call the office at 844-935-3634 — 844-WE-LEND-4. Thank you to both of you for being on today, and for being the face of Mortgage Mom Radio so I didn't have to be. We'll talk to you all real soon.