Due to the relatively high cost of housing in the state, many California home buyers turn to the so-called jumbo loan to finance their purchases. In this article, we’ll look at the jumbo loan limits for California’s major metro areas in 2020.
We’ll also talk about how you might avoid crossing into jumbo territory, by using a first and second mortgage loan as an alternative.
Jumbo Loan Limits for California
When it comes to their size, mortgage loans in California can be classified as either “conforming” or “jumbo.”
- A conforming loan meets or “conforms” to the size limits established by the Federal Housing Finance Agency, or FHFA. These loans can therefore be sold to Freddie Mac and Fannie Mae, the government-sponsored corporations that operate within the secondary mortgage market.
- A jumbo loan, on the other hand, is one that exceeds the limits mentioned above. It’s too big to be sold to Fannie or Freddie. Most jumbo mortgages are sold to investors, instead.
The conforming limits vary by county, because they are based on median home values which also vary regionally. Pricier real estate markets tend to have higher limits, while more affordable cities and counties have lower ones.
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In 2020, the conforming loan limits for California range from $510,400 to $765,600, depending on the county where the home is located.
Crossing the Threshold Into a Bigger Mortgage
Technically speaking, there isn’t really a jumbo loan “limit” for California. There’s a government-issued limit for conforming loans, as explained below. And anything above that amount would be considered a jumbo mortgage.
So it might be more accurate to call it a jumbo loan threshold. When you exceed this threshold (for your particular county), you have crossed over the “conforming” range into the “jumbo” range.
So, how does all of this apply to you, as a borrower? What happens if you borrow within the jumbo loan limit range for California?
Generally speaking, these larger mortgage amounts come with stricter criteria for borrowers. You’ll need to have your financial ducks in a row, to qualify for a jumbo loan in California. It’s a larger amount of money, and therefore a higher level of risk.
Borrowers seeking a jumbo mortgage usually need higher credit scores and bigger down payments, compared to those who stay within the conforming range.
We’ll talk about how you can avoid using a jumbo loan in a moment, if that’s a concern for you. But first, let’s look at the jumbo loan limits for California’s major population centers.
Los Angeles Area: $765,600
The conforming / jumbo loan limit for most of the Los Angeles metro area is $765,600, as of 2020. If you borrow more than that, you’ve entered jumbo mortgage territory. If you borrow that exact amount or less, you’ll stay within the conforming loan range. This applies to the cities of Los Angeles, Pasadena, Glendale, Long Beach, and all other cities within L.A. County.
Inland Empire: $510,400
The Inland Empire is a metropolitan division of Southern California that’s mainly comprised of Riverside County and San Bernardino County. In 2020, the conforming / jumbo loan limit for all cities within Riverside and San Bernardino counties is $510,400, for a single-family home.
San Diego Area: $701,500
The coastal areas of Southern California are generally more expensive than the inland SoCal cities, like Riverside and San Bernardino. As a result, the jumbo loan threshold is set higher for the San Diego area. In 2020, the jumbo mortgage range for San Diego County is anything higher than $701,500, for a single-family home.
San Francisco Bay Area: $765,600
As you might have guessed, the San Francisco Bay Area is another one of those higher-priced real estate markets that gets the highest conforming / jumbo loan limit in 2020. In this region of California, the jumbo loan threshold starts at $765,600. Within the Bay Area, that limit applies to Alameda, Contra Costa, Santa Clara, San Francisco and San Mateo counties.
Sacramento Metro Area: $569,250
Sacramento has a fairly active real estate market, with a lot of residents moving in from more expensive parts of the state. Still, the typical home price in Sacramento is not high enough to warrant the maximum loan limit (as in places like L.A. and San Francisco). In 2020, the conforming / jumbo loan limit for Sacramento County and the surrounding metro area is $569,250.
An Alternative: Using a First and Second Mortgage
For those home buyers purchasing a higher-priced home in California, there’s an alternative to the jumbo loan. You could also use a first and second mortgage, combined, to finance your purchase. This is often referred to as the piggyback mortgage.
The first and second piggyback loan strategy has its advantages:
- The combined loan amount can be up to $1,265,600 in many California counties, if the borrower’s income supports it.
- There’s only a 10% down payment required in some cases. Jumbo loans often require a bigger down payment.
- You could potentially avoid private mortgage insurance, or PMI.
- You don’t have to deal with the stricter jumbo guidelines imposed by many banks.
- Cash reserves aren’t needed in most cases.
- Your total payment drops once you pay off the second loan.
Questions? Do you have questions about jumbo loans in California, or alternative financing strategies like the first and second mortgage? We’re here to help. Bridgepoint Funding serves all of California and offers access to a wide variety of loan programs. Contact our knowledgeable staff today!