The conforming loan limit for most of the San Francisco Bay Area is $625,500, for a single-family home. The two exceptions are Sonoma County, with a single-family loan limit of $554,300; and Solano County, which is capped at $417,000. Anything above these amounts would be considered a jumbo mortgage.
Let’s take a closer look at this distinction, and how it applies to you as a mortgage shopper.
Conforming Loan Limits Defined
As mentioned above, a Bay Area jumbo loan is one that exceeds the maximum “conforming” size limit for a particular county. Essentially, this means it’s too big to be sold to Freddie Mac or Fannie Mae. So it earns a “jumbo” label.
Fannie Mae and Freddie Mac are the two government-sponsored enterprises, or GSEs, that buy and sell bundled mortgage loans on the secondary market. You’ve probably heard of them before. Federal laws limit the maximum size for mortgage loans that can be sold to Fannie and Freddie.
- Anything that falls within this range is called a “conforming” loan, because it conforms to the size restrictions set by the Federal Housing Finance Agency (FHFA).
- Anything above these limits is considered a “jumbo” loan and is not eligible for GSE purchase.
Conforming loan limits vary by county. In some states, a single limit might be applied to all counties within the state. This is often the case in states where there’s not a lot of variance in home prices. In other states with more price diversity, such as California, there can be a wide range of conforming limits.
Bay Area Breakdown: Conforming vs. Jumbo in 2016
The San Francisco Bay Area is made up of nine counties. Seven of those nine counties have the same conforming loan limits, as shown in the gray box below. So the threshold for jumbo loans is the same in those seven counties as well. Solano County and Sonoma County are the two exceptions — they have lower limits than the rest of the Bay Area.
Here are the 2016 Bay Area conforming loan limits and jumbo thresholds for all nine Bay Area counties. (Note: “One-unit” refers to a single-family home. “Two-unit” is a duplex-style home with two residents, and so on.)
So for most of the Bay Area, a jumbo loan is one that exceeds $625,500, for a single-family home purchase. For Solano and Sonoma County, that line is drawn at $417,000 and $554,300, respectively.
Why They Might Rise in 2017
Conforming loan limits are based on median home prices within each county, as outlined in the Housing and Economic Recovery Act of 2008 (HERA). So when home values within a particular county rise significantly over the course of a year, the Federal Housing Finance Agency often raises the corresponding loan limits to keep pace.
We saw this at the end of 2015, when the housing agency announced the new limits for 2016. Most of the Bay Area was unchanged. But in Sonoma and Napa counties, the conforming loan limits were actually raised from 2015 to 2016. They went up by $10,250 in Napa, and by $33,350 in Sonoma.
There’s a chance we could see higher conforming loan limits in 2017, for some Bay Area counties. Home prices have risen steadily over the last year, in many cities across the region. So the FHFA might lift the loan caps as well. For instance, median home prices in Contra Costa County rose by around 7% over the last year, according to multiple sources. Other counties in the Bay Area have experienced similar gains.
We will know more in November or December. That’s typically when the FHFA announces loan limit revisions for the following year.
Jumbo Mortgages Often Come With Higher Rates
If you use a jumbo loan to buy a home in the Bay Area, there’s a chance you will end up with a higher mortgage rate, compared to a borrower who uses a smaller conforming loan.
Lenders often charge slightly higher rates for jumbo loans, and may impose stricter guidelines, because they are exposed to more risk. So there is some incentive for staying within the Bay Area conforming loan limits (though that’s not always possible).
Need a loan? Bridgepoint Funding serves home buyers and mortgage shoppers in the Bay Area, with an emphasis on the East Bay. We offer a variety of loan programs, all of them backed by solid customer service. Please contact us today to explore your financing options. We look forward to helping you!