What is a Jumbo Loan in California? A Complete Guide for 2024

California’s housing market is one of the most expensive in the country. The median home price in the state is over $800,000, more than double the national median of around $370,000. With home prices so high, many homebuyers in California need jumbo loans to finance their home purchases.

What is a Jumbo Loan?

A jumbo loan is a mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA) each year. The conforming loan limit determines the maximum mortgage amount that can be purchased or guaranteed by Fannie Mae and Freddie Mac.

For 2024, the baseline conforming loan limit for most of the U.S. is $726,200. However, the limit is higher in more expensive housing markets like California. The 2024 conforming loan limit for most California counties is $766,550. Any loan amount above that threshold is considered a jumbo loan.

Jumbo loans typically have stricter requirements and come with higher interest rates than conforming loans. That’s because they are viewed as higher risk by lenders since they cannot be purchased or guaranteed by Fannie Mae or Freddie Mac.

Jumbo Loan Limits in California

The conforming loan limit in California for 2024 is $766,550 in most counties. However, in certain high-cost counties like San Francisco and Los Angeles, the limit is even higher:

• San Francisco: $1,109,325
• Los Angeles: $1,089,300
• Orange County: $1,089,300
• Alameda County: $1,109,325
• San Mateo County: $1,109,325

So a loan of $900,000 would be considered a jumbo loan in most California counties. But in San Francisco, it would be under the conforming limit. Always check the limits in the specific county where you are looking to buy.

Jumbo Loan Requirements

Qualifying for a jumbo loan is more difficult than qualifying for a conforming loan Here are some key requirements to be aware of

• Credit score – Most lenders require a minimum credit score of 720 for a jumbo loan, compared to 620 or 640 for conforming loans. The higher your score, the better your chances of approval and interest rate.

• Down payment – You typically need at least 20% down for a jumbo loan Some lenders may accept 10-15% down but will charge higher rates or fees

• Debt-to-income ratio – Your total monthly debt payments, including the new mortgage, should be less than 43% of your gross monthly income in most cases.

• Assets and reserves – Expect to show significant assets and cash reserves equal to 12-24 months of mortgage payments.

• Home appraisal – The property must appraise for at least the loan amount. Jumbo loans often require a second appraisal.

Always check with multiple lenders, as jumbo loan requirements can vary. Work on improving your credit and saving for a larger down payment and reserves to boost your chances of approval.

Jumbo Loan Interest Rates

The interest rate on a jumbo loan is usually 0.25% – 0.5% higher than rates on conforming loans. That’s because jumbo loans are seen as higher risk by investors.

As of February 2024, average nationwide interest rates for jumbo 30-year fixed-rate mortgages are around 7% – 7.5% depending on down payment, credit score, and other factors. Rates are slightly lower in California due to high demand from jumbo borrowers in the state.

The higher interest rate means you’ll pay more in total interest over the life of the loan compared to a conforming loan for the same amount. On a $900,000 30-year mortgage, a 7.25% jumbo loan rate equates to over $200,000 more in interest paid versus a 6.5% conforming loan rate.

Pros and Cons of Jumbo Loans

Pros:

• Allow you to buy a more expensive home
• Potentially require a lower down payment than conforming loans
• Fixed-rate options provide rate/payment security

Cons:

• Higher interest rates increase total interest costs
• Stricter qualification guidelines
• Require private mortgage insurance (PMI) if down payment is less than 20%
• Prepayment penalties may apply if you pay off loan early

Carefully weigh the pros and cons when deciding if a jumbo loan is the right fit for your home purchase. Shop multiple lenders to find the best rates and terms.

Alternatives to Jumbo Loans

If you don’t qualify for a jumbo loan, here are a few options to consider:

• Conforming loan – Buy a lower priced home that allows you to stay under the conforming limit. You’ll get better rates/terms.

• Piggyback loan – Combine a conforming first mortgage with a second small mortgage or home equity line of credit.

• Interest-only jumbo – Pay only interest for the first 5-10 years, then pay principal + interest. Lowers initial payments.

• ARM jumbo – Get a lower rate with a 5/1, 7/1, or 10/1 adjustable-rate mortgage, where the rate is fixed for 5-10 years.

• Portfolio loan – Find a bank or lender that keeps jumbo loans in their own investment portfolio instead of selling to investors. May have more flexible requirements.

• FHA loan – In high cost areas like San Francisco and Los Angeles, FHA loans go up to $970,800 and can be an alternative to jumbos.

Finding the Best Jumbo Loan Lender

Shopping with multiple lenders is key to getting the best jumbo loan rates and terms. Here are some tips for finding the right lender:

• Get pre-approved to compare rates/fees from lenders like Wells Fargo, Chase, Quicken Loans, loanDepot, and local banks/credit unions.

• Ask about discount points – paying points upfront can lower your rate.

• Seek lenders that offer fixed-rate jumbo loans, which provide rate/payment security.

• Ask about mortgage insurance – ideally you want lender-paid MI with no annual fee.

• Inquire about prepayment penalties – avoid lenders that penalize you for paying off your loan early.

• Compare origination fees. Many lenders charge 1-2% of the loan amount in upfront fees.

The lender you choose can save you tens of thousands of dollars over the life of your jumbo loan. So take the time to shop and compare mortgage offers carefully.

The Bottom Line

Jumbo loans allow you to buy a luxury or high-priced home in California’s expensive housing market. But you’ll face stricter approval guidelines, larger down payments, higher interest rates, and higher monthly payments compared to conforming loans.

Make sure you take a holistic look at your finances, shop multiple lenders, and understand all the costs before committing to a jumbo mortgage. While challenging to qualify for, jumbos open the door to buying your dream home in prime California locations.