While the Federal Housing Administration (FHA) is known for helping low- and modest-income borrowers buy or refinance their primary home, changes have been made to the federal program that allows the FHA to now insure higher loan amounts.
Often called FHA Jumbo Loans, Mortgages that exceed conforming loan limits allow borrowers in high-cost areas to buy or refinance under more flexible lending standards. Because jumbo mortgages are purchased and sold on a smaller scale, they typically have higher interest rates than conforming mortgages.
Jumbo loans are those which exceed the limit set by Fannie Mae and Freddie Mac, which are limited by law to a maximum mortgage they can purchase. Borrowers who need a loan above this limit will pay a higher interest rate for a "jumbo" loan than a "conforming" loan. The conforming loan limit is $417,000 for a single-family home; although this limit is higher for multi-family properties and in some high-cost counties, such as Los Angeles and New York City, where the limit for a conforming mortgage is $625,000.
Advantages of FHA Jumbo Loans
FHA Jumbo, or FHA High Balance loans, allow buyers to purchase a home with minimal cash down, versus a conforming jumbo loan, or agency jumbo loan. While borrowers must have higher FICO scores to apply, the loans come with the following advantages:
- 10% down payment required for FHA loans over $417,000, compared to a down payment of 20-35% down for conventional, jumbo loans.
- FHA loans examine overall credit, not just FICO scores. FHA loans have less stringent credit requirements than conventional mortgages.
- Interest only options available
FHA Loan Limits Allowed by HUD
Jumbo loans may be a conventional loan or FHA loan. FHA loan limits have been increased to:
- $729,750 for a single-family home
- $934,200 for a two-family home
- $1,129,250 for a three-family home
- $1,403,400 for a four-family home.
Loan limits are determined by the geographic area of the property, which is decided by the U.S. Department of Housing and Urban Development (HUD). Rates for these jumbo FHA loans are 0.25% to 0.50% higher than true (tier 1) FHA loans that are capped at $417,000.
If your mortgage requirements exceed the new FHA high balance loan limits, you may also explore jumbo options.