When you’re in the process of purchasing a home, your lender will pre-approve you for a mortgage to show the seller that you’re approved for a certain amount. They will pair you with a loan that meets your needs based on your financial situation and the home’s sale price, and conforming loans are a popular option. But what happens if the home is priced above conforming loan limits?
That’s where jumbo loans come in.
What is a conforming loan?A conforming loan is a mortgage guaranteed by Freddie Mae or Freddie Mac that meets certain standards set by the Federal Housing Finance Agency. One standard they set is the amount of the loan. Conforming loans are capped at a certain amount set annually based on the housing market. These loan limits are regulated to ensure that homeownership is promoted among the low- and middle-classes. The appeal of conforming loans is their low interest rates and down payments as low as 3%.
Also known as a jumbo mortgages, jumbo loans offer higher loan amounts than conforming loans allow. In 2021 that loan limit rose to $548,250 for single-family homes. In 2022, it is speculated that the limit will be raised to $625,000.
These loans are not guaranteed or insured by Freddie Mae or Freddie Mac. Because of the risk these loans can pose, their qualification requirements are more strict than conforming loans, but for those who do qualify, it can help them afford homes in more expensive areas.
When searching for a home, work closely with your lender. The professionals at SmartMortgage know jumbo loans and will work closely with you to help you find the best financing option for your home purchase, whatever that may be.
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