In recent years, the American housing market has seen a sharp rise in the number of financial solutions that aspiring buyers can use to finance their transactions. Whether it’s in the context of an apartment purchase or financing for a full-sized farm-and-manor property, mortgages are available for all kinds of purchases. Thanks to the advent of easier application processes and online procedures, closing in on a dream of homeownership has never been easier. As you sift through your many financing options and learn more about which ones are best suited to your needs, two possibilities will particularly pique your interest: jumbo and conventional mortgages.
A Quick Overview
Jumbo and conventional mortgages are the most widely available solutions one can seek. They are used by homebuyers all over Los Angeles to purchase homes of any kind, thanks to their flexibility. With both of these solutions, borrowers are required to meet certain eligibility requirements such as repayment ability, minimum credit scores, income thresholds, and down payments.
While there are some differences between them, the main thing they have in common is that they’re not backed by government-sponsored enterprises. The US Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac do not support jumbo and conventional mortgages, which means they’re backed by private lenders.
Telling the Two Apart
When it’s time to apply for financial assistance, you’re likely going to deliberate between jumbo and conventional mortgages. To give you a better idea of which option best suits your needs, let’s tell both options apart in further detail:
Jumbo mortgages are loans used to finance larger property purchases with steeper price tags, such as listings in the seven-digit range. Also known as jumbo loans, these forms of financial assistance become relevant when a home buyer wants to take out a loan for an amount unsupported by a conventional loan. Over the years, these loans have become a common fixture in the big-ticket real estate market, and today, most luxury home purchases are financed by them.
Jumbo mortgages are classified as non-conforming loans, which means they fall outside the Federal Housing Finance Agency (FHFA) loan restrictions. This means they aren’t backed by Fannie Mae or Freddie Mac but still adhere to guidelines set by the Consumer Financial Protection Bureau (CFPB). Compared to conventional loans, jumbo loans have higher standards in terms of acceptance as they require borrowers to have excellent credit scores and higher income bracket classifications. Financial firms that offer these solutions—such as Shannon Christenot’s partner lenders—are likely to require higher down payments and higher interest rates.
Private lenders such as banks and other financial institutions like credit unions and mortgage companies offer conventional mortgages. In terms of requirements, conventional mortgages follow the same format as jumbo mortgages as they require a down payment, a certain income level, minimum credit score, and a low DTI (debt-to-income ratio).
In terms of scope, conventional loans are best suited to smaller purchase prices as they are held to a national maximum for conforming conventional loans. Note that limits set by Fannie Mae and Freddie Mac can vary depending on the location of a property. For example, the maximum amount for Los Angeles is set at a relatively high $822,375, while the baseline for some states is $548,250.
Purchasing A Home in Los Angeles with Shannon Christenot
When it comes to purchasing a home, choosing between conventional mortgages and jumbo mortgages is the one dilemma that you must face. With this guide, you are sure to end up selecting the right option that best suits your needs! If you’re looking for a mortgage broker in Los Angeles to help you get a jumbo or conventional mortgage loan, give us a call on (818) 601-2231. We’re happy to help!