California Raises Its Home Loan Limits Across All Counties
When buying a home, chances are you will use a conforming loan, or a loan that conforms to the financing requirements set forth by the Federal Housing Finance Agency. One requirement that the FHFA maintains is the conforming loan limit, which is a dollar cap for mortgages that Freddie Mac or Fannie Mae will guarantee or buy.
A conforming loan often has lower interest rates than non-conforming loans. The most common type of non-conforming loan is the jumbo loan, which is a loan that’s amount exceeds the FHFA’s loan limits. In 2021, the national conforming loan limit is set at $548,250. In the California housing market, half a million does not go very far. Fortunately, the FHFA also sets a ceiling loan limit to help aspiring homeowners buy in high-cost areas. The ceiling in 2021 is $822,375. The loan limits in each California county fluctuate between the floor and ceiling limits depending on the cost of living in each area.
Counties With the Highest and Lowest CA Loan Limits
There are 58 counties in California. Of those, the majority have a $548,250 loan limit. The most well-known counties with affordable costs of living include Humboldt, Fresno, Riverside, San Bernardino and San Joaquin. The most expensive counties to live in California, per loan limits, are as follows:
- Orange, San Francisco, San Mateo, Alameda, Contra Costa, Los Angeles, Marin, San Benito, Santa Clara and Santa Cruz, all of which have loan limits of $822,375
- Napa, which has a loan limit of $816,500
- San Diego, which has a loan limit of $753,250
- Monterey and Ventura, both of which have limits of $739,450
- Sonoma, which has a loan limit of $707,250
- San Louis Obispo, which has a loan limit of $701,500
Loan limits increase based on how much higher the cost of living is in a particular area compared to the national average. They start to increase once the local median home value exceeds 115% of the baseline limit.
Buying a Home That Exceeds a Loan Limit
There are several benefits of sticking within your county’s loan limits. However, if the home of your dreams has a purchase price that exceeds your county’s limits, you do have options.
The first option is to simply make a down payment that is big enough to bring your borrowing amount down to within conforming loan limits. For instance, if you want to buy a home in San Diego that costs $800,000, you must come up with $46,750 plus a 3% to 5% of the purchase price.
Your second option is to take out two loans. The first would be a conforming loan. The second would be an FHA loan in the amount of the difference between the home’s purchase price and the conforming loan limit.
The third and final option would be to take out a jumbo loan, which are designed for high-value properties. Because neither Fannie Mae nor Freddie Mac will back a jumbo loan, they are riskier for lenders to issue and, therefore, come with stricter qualification requirements. For instance, your FICO score must be between 700 and 720, your debt-to-income ratio must not exceed 45% and you must have a large cash reserve. Additionally, many jumbo loan lenders require a 10% to 20% down payment, and most charge a higher interest rate.
Find a Loan That Works for You
CA loan limits are higher than most, but many times, they’re not high enough. If your dream home exceeds the cap in your county, check out our jumbo loan options, or discuss other programs with an experienced lender today.
