What Is a High-Balance Loan and How Does It Work?

A high-balance loan refers to a specific type of mortgage designed to facilitate homeownership in areas where property values significantly exceed standard limits. These loans address the challenge of financing homes in more expensive housing markets across the United States. They allow borrowers to secure financing for amounts that surpass the typical conventional loan thresholds while still benefiting from certain advantages associated with traditional mortgages.

Defining High-Balance Loans

A high-balance loan is a mortgage that exceeds the standard conforming loan limits set by the Federal Housing Finance Agency (FHFA) but remains within higher limits established for designated high-cost areas. These loans are eligible for purchase by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. This distinguishes them from “jumbo loans,” which surpass even these higher thresholds and are not acquired by the GSEs. The FHFA updates these limits annually to reflect changes in national home prices. For 2025, the baseline conforming loan limit for a one-unit property in most of the United States is $806,500. In contrast, the maximum ceiling for high-cost areas for a one-unit property in 2025 is $1,209,750, representing 150 percent of the baseline limit.

Characteristics of High-Balance Loans

High-balance loans have specific underwriting standards, often more stringent than standard conforming loans. Lenders typically require strong credit profiles, with minimum credit scores often around 620; higher scores are preferred for favorable terms. Debt-to-income (DTI) ratios are also closely scrutinized, commonly needing to be below 45-50 percent to manage the larger loan amount.

Down payment requirements for high-balance loans can be as low as 5 percent of the property’s appraised value. If the loan-to-value (LTV) ratio exceeds 80 percent, private mortgage insurance (PMI) is typically required. Interest rates for high-balance loans are generally more favorable than those for jumbo loans, but might be slightly higher than rates for standard conforming loans due to the increased loan amount and associated risk. The appraisal process for higher-value properties may also involve additional scrutiny to confirm the property’s market value.

How High-Balance Loan Limits Are Determined

The Federal Housing Finance Agency (FHFA) sets high-balance loan limits annually. The baseline conforming loan limit is adjusted based on the percentage change in the average U.S. home price, as measured by the FHFA House Price Index. This ensures that the limits adapt to evolving market conditions.

High-cost areas are identified where 115 percent of the local median home value exceeds the baseline conforming loan limit. For these areas, the FHFA permits higher loan limits, up to a statutory cap of 150 percent of the baseline limit. This allows for flexibility in regions with elevated housing costs, reflecting local market values without exceeding a defined national ceiling.

High-Balance Loans in Specific Programs

High-balance loans are conventional mortgages eligible for purchase by Fannie Mae and Freddie Mac despite exceeding baseline limits. This distinguishes them from “jumbo loans,” which are non-conforming and exceed high-cost area limits, typically remaining in a lender’s portfolio or sold to private investors. Jumbo loans often require higher credit scores and larger down payments, reflecting their increased risk.

Higher loan limits for high-cost areas extend to government-backed programs such as FHA, VA, and USDA loans. For FHA loans, the limits vary by county, with a national floor and a higher ceiling for designated high-cost areas. In 2025, the FHA floor limit for a one-unit property is $524,225, with a high-cost area ceiling of $1,209,750.

For VA loans, eligible borrowers with full entitlement generally do not have a maximum loan limit, allowing them to finance the full purchase price without a down payment. For those with partial entitlement, VA loan limits align with the conventional conforming limits, including the higher amounts for high-cost areas. USDA loans, aimed at rural and suburban areas, often mirror conforming loan limits, allowing for higher amounts in designated high-cost regions, though they also include specific household income limits.