Understanding High-Balance Mortgage Loans: What You Need to Know

It is simply more expensive to buy a home in one part of the country than it is in another. The same home on the same amount of land costs a different amount on the coast of California than it does in the plains of Kansas. Fannie Mae and Freddie Mac set the conventional loan limit for the entire country each year. As of 2011, the conventional loan limit for a single-family home is $417,000. Loan amounts exceeding this are referred to as jumbo loans, super conforming loans or high-balance mortgage loans.

Jumbo Mortgage Market

The conventional loan limit raised or stayed the same each year from 1980 through 2011, except in 1990 when it dropped by $150. The jumbo mortgage market often required slightly stricter underwriting guidelines than conventional loans. When the housing and mortgage industries collapsed in 2008, many of the jumbo lenders severely restricted new loans or went out of business. Fannie Mae, Freddie Mac and the Federal Housing Administration stepped in to help homeowners with jumbo mortgages.

Conventional High Balance

Fannie Mae and Freddie Mac began offering high-balance loans on a county-by-county basis in 2008. The home had to be located in a recognized high-balance mortgage county. If the home is not in an approved county, it does not qualify for a high-balance loan. The maximum loan amount for a single-family home through the high balance mortgage program is $729,750 in the continental United States. In Alaska, Hawaii, Guam and the U.S. Virgin Islands, the maximum high-balance loan amount for a single-family is $1,094,625. These loan maximums are temporary and may expire in the future.

FHA High Balance

FHA also provides a high-balance mortgage program similar to the conventional high-balance mortgage loan program. This also is set up on a county-by-county basis. FHA has long set loan amounts based on a county-by-county basis. Some states, like Iowa, have one loan limit for all counties. Other states, like Colorado, have maximum loan limits ranging from $271,050, FHA's lowest maximum loan amount, to $729,750. FHA loans require both an up-front mortgage insurance premium and monthly mortgage insurance premiums on all loans, unlike conventional high-balance loans.

Avoiding a High-Balance Mortgage

High-balance mortgage loans often require higher interest rates and stricter approval guidelines than conventional loans. If you can avoid having a high-balance mortgage, you may save money on your mortgage each month. One way is to explore having a second mortgage along with a conventional first mortgage. The first mortgage lender's maximum loan amount only applies to the loan they provide; the lender does not count the second mortgage's balance in the maximum loan amount calculation.