Home buyers with variable income often wonder if they can qualify for a mortgage loan…
Mortgage Options When Buying an Expensive Home in the Bay Area
Buying a home in the San Francisco Bay area can be expensive. After all, we live in one of the priciest real estate markets in the country. And there’s not much we can do about that.
Fortunately, there are some flexible mortgage loan strategies you can use to buy an expensive home in the Bay Area. Today, we will explore several of the mortgage financing options available for those seeking to purchase a high-end property.
Mortgage Loans for Expensive Bay Area Homes
Bay Area home buyers have several financing options to choose from, when it comes to purchasing an expensive house. Here are some of the most common types of mortgage loans used when buying high-end homes in the San Francisco Bay Area.
1. Jumbo Loans
A jumbo loan is one that exceeds the maximum conforming loan limit for the county where the home is being purchased. These limits are established by the federal government and apply to mortgages that are sold to Fannie Mae and Freddie Mac.
In 2021, the conforming loan limit for the San Francisco Bay area is $822,375 (for a single-family home). So if you take out a mortgage for more than that amount, it’s considered a “jumbo” loan. Jumbo mortgage amounts can exceed $1 million, which makes them useful when buying an expensive home in the Bay Area.
As you might imagine, the qualification criteria for jumbo loans can be more strict when compared to a smaller conforming mortgage. After all, there is a larger amount of money being borrowed, and therefore a higher level of risk.
In general, Bay Area jumbo loan borrowers need to have a substantial down payment and good credit to qualify for this level of financing. Please contact us if you have questions about this particular type of mortgage. You can also refer to our jumbo loan FAQ page for additional information.
2. Conforming Loan With a Larger Down Payment
When buying an expensive home in the Bay Area, there’s a chance the purchase price might exceed the conforming loan limit mentioned above. The median house price in our metro area is well above the conforming cap. So a lot of buyers have to “go jumbo” with their mortgage financing.
Even so, it’s possible to use a conforming loan to buy an expensive home in the Bay Area, if you can cover the difference with your down payment. With this option, you avoid the stricter requirements associated with a jumbo loan by putting more money down.
3. Combining a First and Second Mortgage
The so-called “piggyback” mortgage is another common financing strategy for those purchasing a high-end home in the Bay Area. This is where you combine a first and second mortgage loan, while making a down payment to cover the rest of the purchase price.
One common example is the 80/10/10 mortgage strategy. In this scenario, a Bay Area home buyer takes out a first loan for 80% of the purchase price, along with a second mortgage for 10% of the price. The buyer then pays the remaining 10% in the form of a down payment.
Related: First and second mortgage vs. jumbo
There are other variations of this strategy as well. In this scenario, the borrower is essentially using two mortgage loans to buy an expensive home in the San Francisco Bay Area.
4. VA Loans for Military Members
If you’re a military member or veteran, the VA loan program is another viable option for buying an expensive house in the San Francisco Bay Area.
In the past, borrowers who used this program were limited to a maximum mortgage amount similar to the conforming limits mentioned above. But a new rule that took effect last year eliminated these limits for many borrowers.
As we’ve written in a previous blog post, the VA loan program can now be used to buy a fairly expensive home in the Bay Area. In fact, VA-backed mortgages of $1 million or more are now a reality for eligible borrowers.
Note: These are not the only financing options for expensive homes in the Bay Area. They’re just some of the most common mortgage strategies. Please contact us if you’d like to explore these or other options.
FHA Program Less Ideal for High-End Properties
The FHA loan program is a popular option for some home buyers in the Bay Area. But it’s not well suited for those who plan to buy a relatively expensive house in the area.
There is no maximum income cap for this program. In other words, you can’t make “too much” money for this particular program. But there are some firm limits as to how much you can borrow when using an FHA-guaranteed mortgage loan.
Like the conforming limits mentioned above, the maximum FHA mortgage size varies by county. Across the San Francisco Bay Area, the 2021 FHA loan limit is $822,375 for a single-family property.
That might seem like a substantial amount money. But the truth is that the FHA limit falls below the median home price for our area. So this program might not be well suited for someone who needs a mortgage loan to buy an expensive home.
Mortgage questions? Bridgepoint Funding has been helping Bay Area home buyers and homeowners with their mortgage needs for nearly 20 years. We offer a broad range of products, including some that are well-suited for buying an expensive home. Please contact us if you have mortgage-related questions or would like to start the application process.
