Conforming High Balance vs. Jumbo Loan: Comparing Monthly Payments for Homebuyers

As the real estate market continues to grow, the increase in interest rates has become a common concern among buyers. With the help of Annie from Wells Fargo, we can understand the difference between Jumbo Loans and Conforming High Balance Loans and how they affect interest rates.

Annie suggests a scenario where the purchase price of a property is $950k, and the buyer has a 20% down payment. The buyer can either choose a Conforming High Balance Loan or a Jumbo Loan. 

The interest rate difference

For instance, the Conforming High Balance Loan interest rate as of March 3, 2023, for a $760k loan amount is 7.25% with an annual percentage rate of 7.346. Including the HOA fee, property tax, and homeowner insurance, the monthly mortgage payment is around $5,184.54, making the total housing payment a whopping $6,424.54 for a $950k property.

In contrast, the Jumbo Loan 30-years fixed interest rate for the same scenario is 6%, with an annual percentage rate of 6.079. The monthly mortgage payment is $4,556.58, plus the escrow payment, bringing the total to $5,834.58. The difference between the Conforming High Balance cost and the Jumbo Loan cost is almost $630, which the client can use for other expenses.

Conforming High Balance Loan vs Jumbo Loan

So, what is the difference between a Conforming High Balance Loan and a Jumbo Loan? Bay Area counties, including Santa Clara, San Francisco, Contra Costa, Alameda, San Mateo, and Marin, have a three-tier loan limit:

• Less than $726,200: Regular Conforming Low
• $726,200 - $1.089M: Conforming High Balanced Loan
• Above $1.089M: 2 Jumbo Loans

As long as the client meets the Jumbo Loan guidelines, they are eligible for the Jumbo Loan if the loan amount is above $726,200.

The Jumbo Loan Program Basic Requirements:

1. Minimum credit score of 700 (for choosing any fixed interest rate mortgages) or credit score of 720 for any adjustable rate mortgages like 7ARM - 10ARM.
2. Minimum DP of 20%
3. The debt to income ratio max that they can offer is 43% of the total income.
4. Reserve requirement = Minimum 12 months house payment reserve for any loan amount up to $2M.
5. Gift money is allowed, any family member can contribute to the 20% DP and closing cost.

Contrary to popular belief, the Jumbo Loan is not the most expensive loan option. Wells Fargo, for example, only charges a flat fee of $1,650 for the Jumbo Loan Program Application, while the origination fee for the regular conforming loan application is $1,504.

The Relationship Discount Program

Wells Fargo offers a Relationship Discount Program for Jumbo Loan Clients, part of the asset discount, where for every $250k asset that the client brings over before final approval, they get another 0.125% discount on the rate, up to 0.5% discount for $1M. This discount can significantly reduce the client's monthly payment.

Conclusion

For buyers to save money, it is recommended that they qualify for the Jumbo Loan. As explained above, Jumbo Loans offer better interest rates, and the asset discount program can significantly lower the client's monthly payment.

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