Understanding Conforming Loan Amounts in California

California’s housing market is one of the most expensive in the nation, with median home prices well over $700,000 in many counties. This means that many homebuyers need jumbo loans to finance home purchases. However, conforming loans still play an important role in California’s real estate landscape. This article provides an in-depth look at conforming loan limits and amounts in California.

What is a Conforming Loan?

A conforming loan is a conventional mortgage that conforms to limits set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that securitize the majority of mortgages in the US. To be considered conforming, loans must meet the following criteria:

• Loan amount is equal to or less than the conforming loan limit set by the Federal Housing Finance Agency (FHFA) for the county where the home is located.

• Borrower’s debt-to-income ratio is less than 45%,

• Loan has a prime interest rate.

• Loan meets Fannie Mae and Freddie Mac underwriting guidelines.

Conforming loans are desirable because they can be sold to Fannie Mae and Freddie Mac on the secondary mortgage market. This gives lenders more liquidity to offer competitive interest rates. Loans that exceed conforming loan limits are called “jumbo loans” and typically have higher rates.

Conforming Loan Limits in California

The FHFA establishes maximum conforming loan limits each year based on home prices nationwide. However, loan limits can vary by county to account for differences in home values.

Here are the current conforming loan limits for California counties in 2022:

• Most counties: $726,200
• High-cost counties: Up to $1,089,300

High-cost counties where loan limits exceed the baseline include:

• Alameda County
• Contra Costa County
• Los Angeles County
• Marin County
• Monterey County
• Napa County
• Orange County
• San Diego County
• San Francisco County
• San Mateo County
• Santa Clara County
• Santa Cruz County
• Ventura County

These higher limits are in place to better serve high-price markets like the San Francisco Bay Area and Southern California.

Conforming Loan Limit History in California

Conforming loan limits adjust annually based on changes to the national median home price, as calculated by FHFA. In high-cost areas like California, limits have steadily risen over the past decade:

• 2011: $729,750
• 2015: $625,500
• 2018: $679,650
• 2021: $822,375
• 2022: $1,089,300 (high-cost counties)

The 2022 conforming loan limit of $1,089,300 for high-cost California represents an all-time high. This allows more home purchases in the state to qualify for conforming loans rather than jumbos.

Benefits of Conforming Loans in California

Even with high home prices, conforming loans offer advantages for California homebuyers, including:

• Lower interest rates – Conforming loans often have interest rates 0.25% to 0.5% lower than jumbo loans. This can save tens of thousands in interest over the loan term.

• Lower down payments – Conforming loans require as little as 3% down for first-time buyers. Jumbos typically need 10% to 20% down.

• More flexible credit – Conforming loans can qualify borrowers with credit scores as low as 620. Jumbos usually require scores of 700+.

• Lower mortgage insurance – MI rates are lower on conforming loans due to lower risk for lenders.

While jumbos are needed for pricier homes, conforming loans give more buyers access to affordable financing. Even high-income households may use conforming loans to keep costs down.

Conforming Loan Eligibility in California

To qualify for a conforming loan in California, the primary requirements are:

• Loan amount must be equal to or less than the conforming limit for the county.

• Down payment as low as 3% for primary residence.

• Credit scores typically 620 and above.

• Debt-to-income ratio below 45% in most cases.

• Loan-to-value ratio up to 97% of appraised value.

• Occupancy primary residence, second home or investment property.

As long as you meet general eligibility standards, using a conforming loan can save thousands over a jumbo mortgage.

Finding the Best Conforming Loan Lender

The first step is checking updated conforming loan limits for your county. Then, shop mortgage lenders to compare loan options and interest rates. National lenders that commonly offer conforming loans in California include:

• Chase
• Wells Fargo
• PNC
• Truist
• TD Bank
• Fifth Third Bank

You can also check with credit unions, community banks, and non-bank online lenders for conforming loan rates. Getting multiple quotes helps ensure you find the most competitive rate.

Working with an experienced loan officer makes the process smoother. They can pre-approve you for a specific conforming loan amount and property value range. This gives you more negotiating power when submitting offers.

The Conforming Loan Amount You Can Afford

When mortgage shopping, pay attention to the loan amount and monthly payments you feel comfortable taking on. Some key factors:

• Target a monthly mortgage payment below 28% of your gross monthly income as a general rule.

• Account for other fixed debt payments like auto, student, and personal loans.

• Factor in property taxes, insurance, HOA fees, and maintenance costs.

• Leave room in your budget for other expenses and savings each month.

• Use online mortgage calculators to estimate payments at various loan amounts.

Staying within your affordable conforming loan limit ensures you don’t over-extend your finances.

Next Steps to Getting a Conforming Loan

If you’re shopping for a home in California, here are some tips for securing a conforming loan:

• Get pre-approved to confirm the max conforming loan amount you qualify for.

• Prioritize homes listed around 5% below your pre-approval amount. This builds in wiggle room for bidding.

• Move fast on listings since conforming loan financing is attractive for sellers.

• Hire a real estate agent experienced with conforming loan transactions. They can strategically negotiate purchase prices.

• Be ready to provide documentation like pay stubs, tax returns, and bank statements to your lender.

• Lock in an interest rate as soon as possible after going under contract.

With smart planning, a conforming loan can make buying a home in California more affordable. Knowing the current conforming loan limits in your county is the critical first step.