Key highlights from this article:
- In the San Francisco Bay Area, a jumbo loan is anything above $765,600.
- Borrowers seeking a jumbo mortgage could encounter higher rates.
- These loans often require a larger down payment as well.
- The jumbo loan market is starting to warm back up again.
Jumbo loans are commonly used in the San Francisco Bay Area due to the relatively high cost of living here. Homes cost more, so buyers often have to resort to larger loans — including the so-called “jumbo” mortgage product.
Because of this, we thought it would be helpful to our readers if we offered an update on jumbo loans in the Bay Area. Here’s what you need to know about jumbo loan rates, limits, and other pertinent trends as of summer 2020.
Bay Area Jumbo Loans in 2020
Let’s start with a quick definition. A jumbo loan is one that exceeds the conforming loan limits established by the Federal Housing Finance Agency. These limits vary by county and are based on median home values.
Here’s the gist of it: A conforming loan can be sold to Freddie Mac and Fannie Mae, while a jumbo mortgage product cannot.
When researching the lending process, you might have encountered the term “Bay Area loan limits.” This is actually a misnomer. The truth is that different lenders have different caps or limits for the jumbo mortgages they offer, and it largely depends on the borrower’s income level.
But there is no single or standardized “jumbo limit” across the board. If a particular home loan is bigger than the conforming limit for the county where the property is located, then it falls into the jumbo category.
In most counties within the San Francisco Bay Area, a jumbo loan is anything above $765,600. That’s for 2020. Conforming limits are revised annually, and sometimes they go up to keep pace with rising home values. But for 2020, a jumbo loan in the Bay Area is anything above $765,600.
The conforming / jumbo loan threshold is a bit lower up in Wine Country. The 2020 conforming loan limit for Sonoma County is $704,950. In Napa County, it’s currently set at $764,750. Again, this is all tied to median home values.
But for the bulk of the San Francisco Bay Area, the jumbo loan threshold is set at $765,600 for 2020. This applies to the counties of Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara and Solano.
Higher Mortgage Rates May Apply
A few years back, jumbo loans typically had lower mortgage rates (on average) than their smaller conforming counterparts. But that has changed in recent months.
As of summer 2020, Bay Area jumbo loans often have higher interest rates when compared to the conforming products. This is true for our area and also for the nation as a whole.
According to a recent report from the Mortgage Bankers Association:
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances was 3.29% during the last week of June 2020.
- The average rate for 30-year fixed-rate mortgages with jumbo loan balances was 3.59% during that same week.
If you recall from the previous section, Bay Area jumbo loans cannot be sold to the government-sponsored mortgage buyers Freddie Mac and Fannie Mae. These “oversized” loans are typically sold to private investors instead.
When the coronavirus (COVID-19) pandemic spread to the U.S., investors began to shy away from jumbo mortgage products. So these bigger loans became more expensive for borrowers, in the form of higher interest rates.
Now, as of early summer 2020, it appears that investor demand for jumbo loans is growing again. So we could see more of these mortgage products originated during the second half of 2020, as the market loosens up. Time will tell.
According to a May 2020 article from HousingWire: “it looks like non-QM [including jumbo] lending is staging a comeback, albeit a slight one, as several companies that halted non-QM lending in March are now back in the market.”
Bottom line: It’s still possible to qualify for a jumbo loan in the Bay Area, as long as you have sufficient income. But you might end up with a higher rate than you would have with a smaller conforming loan product.
Alternative Mortgage Strategies for High-End Homes
You want to buy a home that costs more than the conforming loan limit for your county, so you have to use a jumbo loan. Right?
Maybe. Or maybe not. There are actually some alternatives to using a jumbo loan when buying a home in the Bay Area. We’ve written about these strategies before.
One commonly used strategy is to combine a first and second mortgage to account for the bulk of the purchase price, and to cover the remainder with your down payment.
The 80/10/10 mortgage strategy is a good example of this. With this approach, a Bay Area home buyer could take out a first loan for 80% of the purchase price, along with a second one for 10%. The borrower then makes a down payment of 10% to reach the full 100%.
In addition to being an alternative to the Bay Area jumbo loan, this strategy can help you avoid private mortgage insurance.
Questions? Please contact us if you have questions about conforming loan limits in the Bay Area, jumbo mortgages, or other topics covered in this article. We offer a wide variety of home loan products and are happy to answer any questions you have!