When shopping for a home in high-cost areas like San Francisco or New York, prices often exceed the standard conforming loan limits, creating challenges for many buyers. An FNMA High Balance Loan is designed to fill this financing gap. This type of mortgage allows borrowers to take out loans that exceed the baseline conforming loan limit but stay under the higher limits established for specific high-cost counties.

Each year, the Federal Housing Finance Agency (FHFA) sets the conforming loan limits that Fannie Mae (FNMA) and Freddie Mac will purchase. For 2024, the baseline conforming loan limit for a one-unit property is $766,550 in most U.S. counties. However, in designated high-cost areas, the limit increases up to $1,149,825, reflecting the local housing market conditions (source: FHFA Official Limits).

Loans that fall between the baseline and high-cost area limits are considered high balance loans. Loans exceeding the high-cost area limit are classified as jumbo loans, which typically have stricter requirements and higher interest rates.

How FNMA High Balance Loans Work:

  • They follow Fannie Mae’s underwriting guidelines but accommodate higher loan amounts.
  • Because these loans are eligible for purchase by Fannie Mae, lenders often offer better terms than for jumbo loans.
  • Down payments can be as low as 5% depending on the lender, and credit score requirements are generally more lenient than jumbo loans.

Comparing FNMA High Balance Loans and Jumbo Loans:

Feature FNMA High Balance Loan Jumbo Loan
Backing Backed by Fannie Mae (GSE) Not backed by Fannie Mae; held by private lenders
Loan Limits Capped at FHFA high-cost area limit ($766,550 to $1,149,825) Above high-cost area limit
Down Payment Often as low as 5% Typically 20% or more
Credit Score Usually 680+ 720+ or higher
Debt-to-Income More flexible guidelines Stricter limits
Interest Rates Generally lower than jumbo loans Higher and more variable

Eligibility:

To qualify, the property must be located in an FHFA-designated high-cost county, and borrowers must meet lender-specific financial criteria, including creditworthiness and debt-to-income ratios.

Common Misunderstandings:

  • High balance loans are not jumbo loans; they remain conforming loans with backing from Fannie Mae.
  • The property’s location determines eligibility, not just the home’s price.
  • Interest rates for high balance loans are typically lower than those for jumbo loans but slightly higher than standard conforming loans.

For more detailed mortgage terms, see our Conventional Mortgage guide and learn how jumbo loans differ at Jumbo Loan.

FAQs:

  • How can I check the high balance loan limit for my county? Use the FHFA’s Conforming Loan Limits Map.
  • Can I use a high balance loan for an investment property? Yes, but qualifying requirements may be stricter; check with your lender.
  • Is qualifying for a high balance loan harder than a standard conforming loan? Slightly, due to the larger loan amount, but it’s more accessible than a jumbo loan.

References:

For authoritative information about mortgage types, visit the Consumer Finance Protection Bureau.