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What’s the Difference Between a Jumbo and a Super Conforming Loan?

What’s the Difference Between a Jumbo and a Super Conforming Loan?

February 3rd, 2021 | Jumbo Loans

If you are hoping to buy a home in one of the country’s pricier markets, you may need a special type of mortgage. The main two are jumbo loans and super conforming loans. Here’s what you need to know about each one and which is right for you:

Background on the Mortgage Market

The U.S. government sets limits on how much of a mortgage it is willing to guarantee. There are two government-backed entities – Fannie Mae and Freddie Mac - that buy back home loans, package hundreds of them in bundles and resell them in small bits on the secondary market. Mortgage lenders like to sell off the mortgages they make so they can free up cash to make more loans. So, the regulatory Federal Housing Finance Agency (FHFA) determines the annual level and any lender who wants to sell loans back must make sure they fit within the price tag. These types of mortgages are called “conforming” loans because they adhere to the federal guidelines. Of course, it is difficult to set just one limit for the entire country since real estate prices vary so much from region to region. The FHFA assigns higher limits in high-cost areas. For example, for 2021, the conforming loan limit will be $548,250 for the majority of the U.S. (115% higher than the national average) and $822,375 in the top markets.

What is a Super Conforming Loan?

A super conforming loan is one that falls within the higher loan limit in a pricier area. These mortgages are also called high-cost or high-balance loans. They were created by Fannie and Freddie to accommodate buyers in expensive areas. They provide the same guarantees to lenders as conforming loans, giving incentive for lenders to make those large mortgages.

Super conforming loans are available in fixed-rate or adjustable-rate form. Down payments can be as low as 5% with certain programs. These loans can also be used to purchase primary or investment property (up to four units), and they can be used to buy a single-family vacation home.

What is a Jumbo Loan?

A jumbo mortgage is one that has a higher total than the conforming loan limits, even higher than super-conforming levels.  There are certain areas of the country (i.e., San Francisco, New York City) where the median home price is higher than even the super conforming limit and the government is only willing to back so much of that debt. Jumbo loans are the answer in these situations. All the same loan options are available, but because they do not have full government backing, jumbo loans involve more risk and lenders will usually have stricter qualifications. This might include higher credit scores, and larger cash reserves. Larger down payments are also typically required. For example, you might have to put a full 20% down for loans up to $1 million, and 30% for loans over $2 million.

Which One is Better?

If you meet the requirements for a super conforming loan, it will often provide you with more options and sometimes lower costs. If you the property you want to buy is higher than the super conforming limit but you don’t want to go with a jumbo loan, increasing your down payment could help bring you within the super conforming limit. Jumbo loans are still a great tool though, and the interest rates can be just as competitive as conforming mortgages during hot housing markets.

Do you have a question? Call us today at 847-257-7278, we can quickly answer any questions that you have and even give you a free estimate.

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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate Lic #MB.6761138, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights Lic #60DB055973, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation Lic #MBR1930 dba Prime 1 Mortgage Inc, a Kentucky Mortgage Loan Broker Licensed by the Office of Financial Institutions Lic #MB729362, a Tennessee Licensed Mortgage Broker by the Department of Financial Institutions Lic #218020, a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending, and a Wisconsin Licensed Mortgage broker by the Department of Financial Institutions Lic #1434638BR Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638

Figure: 7 TAC §80.200(b)

"CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.

THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.