If you’re considering the purchase of a home in one of the pricier US housing markets, you may need to apply for a special kind of mortgage loan, namely a “jumbo” or “super conforming” loan. It’s important to remember that the Federal Government sets limits or caps on the mortgage amount it’s willing to guarantee.
Mortgage Market Overview
Fannie Mae and Freddie Mac are two government-backed entities that buyback home mortgage loans, bundle hundreds of them in packages, and resell them in smaller amounts in the secondary market. Lenders like to sell these off so they can free up more cash in order to make more loans. So, the FHFA (Federal Housing Finance Agency) will determine the level or limit and any lender wanting to sell back their loans must ensure that they fit within these limits.
These are commonly referred to as “conforming” loans since they adhere to Federal Government guidelines. Ken Wichman of Liberty Capital quoted “Since real estate prices vary so much from one area of the country to the next, it makes it difficult to set a universal limit for the entire US. In the higher-priced areas, the FHFA will set higher limits on loan amounts. For example, the conforming loan limit in 2021 will be $548,250 for the majority of the country (115% higher than the national average) and $822,375 in the higher-priced markets.”
What is a Jumbo Loan?
Jumbo mortgage loans have higher totals than the limits on conforming loans. In fact, they’re even higher than the limits on super-conforming loans. Certain areas of the US such as New York City and San Francisco have median home prices that are even higher than the limits on super-conforming loans. Consequently, the government will only back a certain portion of the debt. In these situations, jumbo loans are the better solution. The same loan options are still available, but they involve more risk since they are not fully backed by the Federal Government.
What is a Super-conforming Loan?
Super-conforming loans fall within the higher limits for loans in pricier areas of the US. They are also referred to as high-balance or high-cost loans. Fannie Mae and Freddie Mac created these to accommodate homebuyers in these pricier regions of the country. Just like conforming loans, these loans provide lenders with the same guarantees and thereby provide an incentive to lenders to make those larger mortgages. Additionally, these loans are available in adjustable and fixed-rate form.
If you are looking to get a loan or require more details about them, we are here to assist you. Our business representatives will walk you through the whole process. For more information, call Liberty Capital Services today at (614) 505-0620.