What's the Difference?

Just a couple of weeks ago, I had a buyer come into one of my open houses who just loved the house. He and his wife wanted to write an offer on the house right then. The home at the open house was priced over a million dollars. They both had great jobs, good credit and had heard on the radio that loan rates were down below 5%. They assumed that they could get financing without any problems due to their outstanding credit rating and they were planning to put 20% down. Well of course they can get a great loan, a "JUMBO LOAN" at the rate of 6.5%.
Like so many other buyers, they were shocked to learn that the difference between a Conforming Loan and a Jumbo Loan was nearly $1,003 in their payment per month. They asked a lot of questions after I explained what their new payment was going to be. With this new information, they didn't qualify for this home.
So what is the difference between a "Conforming Property" and a "Non-Conforming Property?" What is the difference between a "Conforming Loan" and a "Non-Conforming Loan," or a "Jumbo Loan" and a "Super Jumbo Loan?"
A "Conforming Property" is any residential property of 1 to 4 units. It can be a Condo or Town Home, as well as a Single Family Residence.
A "Non-Conforming Property" would be any property of mixed use, or 5 or more units, etc. An example of this might be "The Lofts" in the redevelopment of downtown areas such as: LA, Fullerton, or Brea, or store front properties with apartments above. Note: these can be good investments, however, it is hard to find a lender to loan on these types of properties...usually a "Commercial Bank."
The "Conforming Loan Rate" is the rate that you will normally read about or hear advertised. The Federal Housing Finance Agency (FHFA) has determined that the "Conforming Loan" loan limit will remain at $417,000 for 2009 in most areas in the U.S., with higher limits in certain cities and counties. (Feel free to call me and inquire about the loan limits in your area 714.626.8880).
A "Jumbo Loan" is any residential loan above $417,000. The "Jumbo Loan" typically carries a higher interest rate than conforming loans. Jumbo Loans have varying limits for different areas of the country as well.
A "Super Jumbo Loan" is a specialty type of loan. Usually an "Adjustable Rate Loan" with a shorter term limit of 5,7,10 years. An example of this type of loan is a $25,000,000 home with 50% down leaving a loan amount of $12,500,000.
You may ask, "What difference does this make to me?"
If you are buying or selling a home, or just thinking about it, it could mean the difference between you or your potential buyer qualifying for a loan or not. Or, in having to put down a larger down payment to get a better interest rate.
EXAMPLE #1: If your original purchase price is $521,000 and you put 20% down ($104,200), your loan amount would be $416,800, a "Conforming Loan."
EXAMPLE #2: If your original purchase price is $750,000 and you put 20% down ($150,000), your loan amount would be $600,000, a "Jumbo Loan."
This is where we separate the proverbial men from the boys, or ladies from the girls. Good Realtors, from the inexperienced.
In this market, of the buyers purchasing property with the maximum conforming loan limit of $417,000, they would have a payment of approximately $2,839 with taxes and insurance included. This means the buyer should have approximately $8,500 in income per month before taxes.
If the purchase price is $750,000 with 20% down ($150,000), a loan amount of $600,000, a "Jumbo Loan," the payment would be approximately $4,982 with taxes and insurance included. This means the buyer should have approximately $15,000 in income per month before taxes.
The above is an EXAMPLE ONLY. When you are thinking of buying or selling, or if you have any questions regarding loans, give me a call. There is a difference in Realtors.

John Chesshire
714.626.8880