What is the Difference Between Conforming and High Balance?
A jumbo mortgage is simply a mortgage loan above the conforming loan limits. We do offer a wide variety of jumbo mortgage products, but they can be harder to qualify for. For more information on the differences between conforming conventional mortgages and jumbo mortgages please see our CONVENTIONAL VS. JUMBO BLOG.
Mortgage Options On Conforming Loans
For conventional mortgages, we offer both Fannie Mae and Freddie Mac mortgages. We even have specialty products such as Home One and Home Ready, please see our HOME READY BLOG or HOMEONE BLOG for more information on these. This article is going to be designed for our clients who are looking for loan amounts between $647,200 and $970,800 who DO NOT want a JUMBO mortgage.
Traditional Jumbo Loan Requirements
The majority of jumbo mortgages have high reserve requirements. Reserves are funds leftover in your bank account after a down payment and closing cost. When purchasing a home that fits into the jumbo realm, the reserve requirement can escalate quickly. Many jumbo loan products require 12 and even up to 18 months of reserves! Keep in mind, that is above and beyond the down payment and closing costs. The reserve requirement for the Nationwide High Balance Conventional Mortgage is determined per AUS (automated underwriting system), usually just 1 month.
Alternative Mortgage Options On Jumbo Loans
As stated above we have rolled out a new loan program available for borrowers looking to finance between $647,200 and $970,800 with a Conventional mortgage. This is a specialty loan product that not many lenders have available to them. It is a great way to close your purchase transaction faster compared to a jumbo mortgage. The guidelines also follow Fannie Mae with LIMITED overlays. Since this is a specialty product, and not a government-sponsored enterprise (GSE), there are a few overlays to qualify for this product.
Main Lender Overlays On High Balance Conforming Loans
- Purchases up to 90% LTV (loan to value)
- Refinances up to 80% LTV (loan to value)
- Must have a minimum credit score of 680 or higher
- The loan amount MUST be at least $1 higher than the county loan limit
- No manual underwriting allowed
- 43% MAX DTI (debt to income)
As you can see this loan product is amazing. Only needing a 10% down payment for what could be qualified as a jumbo mortgage really opens up the purchase market for higher-cost homes.
High-Balance Conforming Loans Are Available In All High-Cost Counties In The United States
Many areas of the country such as Chicagoland have many homes well above $700,000 and there are not any high balance areas in regard to conventional loan limits. To see a map of high balance counties, please visit The FEDERAL HOUSING FINANCE AGENCY’S WEBSITE.
High-Cost Areas In The United States
The image below gives you an idea of where the high balance counties of the United States are located:
From the map above, you can see the majority of the country has a maximum conventional loan limit of $484,350. If you are looking to purchase a home where the loan amount will be higher than that, you will need to use a jumbo loan or this “high balance nationwide” conventional product.
Benefits Of High Balance Conforming Loans
Advantages to using the nationwide high balance conventional mortgage;
- Get around reserve requirements for jumbo mortgages
- Typically have a lower interest rate
- The ability to only put down 10%
- The ability to buy out your mortgage insurance premium (more details below)
Private Mortgage Insurance (PMI) On Conforming Loans
The ability to buy out your mortgage insurance premium (more details below):
- NO monthly mortgage insurance will be required!
- Conforming loans under the loan amount limit require either borrower paid or lender paid mortgage insurance if you are putting down less than 20%
- With this nationwide high balance program, borrower-paid mortgage insurance is NOT an option
- You will buy out the lender paid mortgage insurance adjustment hit if you do not put down 20%
- This buyout is usually cheaper than the loan level pricing adjustment for lender paid mortgage insurance
Please see our blog on LENDER PAID MORTGAGE INSURANCE BLOG for more details. This will allow you to have a cheaper monthly payment overall.
A Few More Requirements
CLN is a mortgage company licensed in multiple states with no lender overlays. Even if your AUS (automated underwriting system) gets an appraisal waiver, and an appraisal must be completed. Sometimes referred to as a PIW (property inspection waiver), either way, this is not allowed on this program. 30 Year FIXED is the only way this loan is offered. May only be used for primary and second homes only. May only be used on single-family homes or two-unit properties.
Tax Return Requirement On High-Balance Conforming Loans
The requirement of tax returns is slightly different than the Fannie Mae guideline around tax returns. If tax returns are required for any reason and self-employment income is present, 2 years of all personal and business tax returns AND profit and loss statement will be required. All tax documents must be wet signed. For any business reported, even if not using the income, a profit and loss and balance sheet must be submitted for review. This is more strict than typical conventional mortgages.