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January 19, 2023

Expanded Conforming vs Jumbo Loans

Is an Expanded Conforming Loan a Better Option Than a
Jumbo Loan?

If you’re looking to buy in an area where home prices are a bit higher, you might need a slightly
bigger mortgage loan to make your homeownership dreams come true. There are jumbo loans,
but these often come with stricter guidelines and a higher down payment. Fortunately, there are
what are called, expanded conforming or high–balance loans that allow you to access higher
loan limits in high–cost areas.

In this message, we will share what you need to know about expanded conforming loans, how
they work and how they compare with jumbo loans.

What Are Expanded Conforming Loans?

It’s easier to define expanded conforming loans if you start with the basics of what is
a conforming mortgage.

A conforming loan also known as a conventional loan, is any loan that’s backed by the
government–sponsored enterprises Fannie Mae or Freddie Mac. However, the key difference
here is the loan limit itself.

Expanded conforming loans, are also referred to as high–cost or high–balance mortgages, are
loans with higher loan limits specifically designed for areas where market demand has led to
high home prices.

Fannie Mae and Freddie Mac created these loan options to help in areas where home prices
tend to be a bit higher like Hawaii, Alaska and California.

How Expanded Conforming Loans Work?

Expanded conforming loans differ from conforming loans in a couple notable ways. The first is
by creating Expanded Conforming Loan Limits.
Nationwide, the standard loan limit for conforming loans is $726,200 for 2023. In high–cost
areas, loan limits are set specifically for the county. In the highest–cost areas, as well as the
states of Alaska and Hawaii, the top expanded conforming loan limit is $1,089,300
(2023). These are the limits for single–unit properties. Homes with multiple units have higher
limits but also a conforming level and an expanded conforming level.

Expanded Conforming Loan Rates

As with most types of home loans, mortgage rates may differ depending on your lender.
Typically, you’ll choose either a fixed–rate or an adjustable–rate mortgage (ARM), the main
difference being that a conforming fixed loan will have a set interest rate for the life of the loan,
whereas an ARM can change with the market.

Do You Need A Expanded Conforming Loan?

If your loan amount is above the conforming limit – you may need an expanded conforming loan
However, it may not the only choice so important to look one step further.

For a loan amount over $1,089,300 (2023) a jumbo loan would be required. It is the “in–
between” where it gets interesting. Even though the guidelines are generally more restrictive
with the jumbo program it can be that the pricing and interest rate could be better than an
expanded conforming loan. It is worth a look, and we do this all the time.

There are a couple of key differences when it comes to jumbo loans vs. expanded conforming
loans. The first is that the loan to value for jumbo loans is limited to about 85% for most jumbo
loans as opposed to up to 95% for an expanded conforming loan.

The second is that there are stricter qualification requirements for jumbo loans. Many lenders
have options for Jumbo loans, but each may be a bit different. For example, a jumbo loan will
require a better credit score and more reserves than a conventional or expanded conventional
loan.

The bottom line is that expanded conforming loans offer those living in a high–cost area the
opportunity for more affordable financing.
Expanded conforming loans have a couple of key advantages over jumbo loans, namely lower
down payment options and looser qualification requirements. If you’re looking to buy or
refinance a home, it’s one of several loan types to consider.

If you or someone you know is looking to buy or refinance or to have us take a look at your
individual situation and look for possibilities please contact me at the contact information below.
I look forward to helping in any way that I can.
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