For many first time homebuyers the process of purchasing a home can be a daunting one, from choosing a trustworthy realtor, to being assaulted with unfamiliar industry terms and obtaining a loan. Depending on the purchase price of the selected unit, many homebuyers will not be required to understand the different types of loans available to them for they will simply need a conventional loan. But for others who are in the market for a pricier piece of property, they may be required to explore a non-conventional, jumbo loan.
A conventional, or conforming, loan is one that falls within the lending limits set by government-sponsored enterprises Freddie Mac and Fannie Mae, which is $417,000. In some parts of the country, though, that limit escalates to $625,500 reflecting higher home prices in high-end markets such as New York and San Francisco. A jumbo loan in California is similar to those in other states, and is one that exceeds those conforming loan limits not federally guaranteed.
The lending limits of jumbo loans in California differ among the 58 counties that reflect the distinctive differences in median income, education and cost-of-living within those counties that result in more expensive homes. These factors are recognized by Fannie and Freddie, therefore they have certain exceptions for specific counties around the nation, including those in California.
The highest limit before a loan is considered a jumbo loan in California is $625,500 in counties such as Los Angeles, Orange, San Francisco and Santa Barbara. Other locations, such as San Diego and Ventura counties, have limits ranging between $500,000 and $600,000, while Riverside and San Bernardino counties have the standard limit of $417,000.
Location is also a factor when it comes to lending requirements. For example a piece of property in Manhattan Beach, Calif. may be viewed differently than a similarly priced property in a harder-to-sell, rural area.
Up to a year ago jumbo loans in California were more challenging to qualify for due to the higher risk posed for lenders because it is not federally guaranteed. A borrower’s approval criteria is scrutinized in more detail, and will be required to pay a higher interest rate and a larger down payment compared to a conforming loan amount.
According to Ed Hoffman, president of Wholesale Capital Corporation and direct mortgage lender who has offices peppered throughout Southern California, lenders today are more willing to facilitate the previously arduous process of obtaining a jumbo loan in California in light of market stabilization.
In order to obtain a jumbo loan in California, a borrower must:
• Show a debt-to-income ratio no higher than 43 percent – the total monthly house payment and all other installment and revolving debt payments can’t exceed 43 percent of pretax income (this does not include utilities and other recurring living expenses);
• Possess a FICO credit score of at least 700;
• Place a down payment of at least 20 percent;
• Show proof of income and cash reserves of six – 18 months of mortgage payments, including taxes and fees.
This is a favorable time for borrowers to explore obtaining a jumbo loan in California in light of market stabilization that is coaxing lenders to ease the above criteria. For example, it is typical for lenders to require a minimum of two years of tax returns for a self-employed borrower, but there have been instances of loans being granted to those who have owned their business less than that because their longevity in the same industry was considered along with significant funds in reserve.
The Federal Reserve conducts a survey once per quarter in which it asks its 90-plus member banks about the current lending environment. The survey covers a wide range of loan types, both commercial and residential. The purpose is to gauge consumer and business demand for bank loans, and the banks’ willingness to finance such loans.
The Fed Senior Loan Officer Survey supports the fact that obtaining a jumbo loan in California is less stringent than it was a year ago. Through each quarter last year mortgage lenders reported to the Fed that mortgage standards were loosening. Proving that this is an ongoing trend, 85 percent of mortgage lenders reported they eased loan approval standards in the first quarter of 2014.
For more information on how to qualify for a jumbo loan in California, call one of the many lending experts at Wholesale Capital Corporation at 844-571-2777.