Michaela Phillips, Guaranteed Rate, Inc.
Anyone looking for a new home knows one thing: they’re expensive. And that leaves prospective homeowners wondering whether they can afford to buy. While some people are able to purchase in cash, the vast majority of us must rely on loans, often high balance ones.
High balance loans are set annually by the Federal Housing Finance Agency (FHFA) and subject to high-cost area loan limits. In January of 2017, these loan limits increased once more.
In Boulder County, the new limit is $529,000, putting the new purchase price (with 5% down) at $556,850. In Broomfield, Clear Creek, Denver, Douglas, Gilpin, Jefferson, and Park counties, the new limit is $493,350, putting the new purchase price (with 5% down) at $519,300.
For people looking to buy in Boulder or Denver – two places well known for their cost of living – these loan limits are good news: they open up more possibilities.
High Balance Loans versus Other Loans
In the United States, most homeowners take out conforming loans. This is a type of mortgage loan that conforms to the Fannie Mae and Freddie Mac guidelines. The most important guideline is loan size, but credit score, debt-to-income ratio, and size of down payment also play a role.
Jumbo loans are loans that exceed the guideline limits and are not ideal for most buyers; they come with many restrictions, reluctance on the lender’s part, and require higher down payments.
High balance loans are able to avoid the “jumbo loan” label because the guideline limits increase as a reflection of the area’s high home pricing. In essence, they are the middle ground between conforming loans and jumbo loans.
How High Balance Loans are Set
The limits of high balance loans are determined by the FHFA; they evaluate high-cost areas to determine what is fair. Then, they set loan limits for the individual counties. This is why the limit for Boulder County is higher than for Denver County: it costs more to live there. These loans are technically conforming as they conform to different guidelines; thus, they’re often called high balance conforming loans.
Who Can Benefit from High Balance Loans
High balance loans are ideal for home buyers who want to borrow more than an overt conforming loan allows, but less than a jumbo loan. They’re also ideal for anyone who can’t afford – or chooses not to – put 20 percent down. As mentioned above, high balance loans only require 5 percent (previously, they required 10 percent).
High balance loans are simply another option for people looking to buy. If you’re interested in moving to Boulder and Denver and have always assumed the homes here were out of your price range, a high balance loan may allow you to think again.
By Michaela Phillips, Guaranteed Rate, Inc.
Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail [email protected] or visit michaelaphillips.com. NMLS:312874.
