Super jumbo mortgages are mortgages for extremely large amounts of money, typically upwards of $500,000 United States Dollars (USD). No specific regulations stipulate the size of such mortgages, but they are higher than so-called jumbo mortgages, and the loan comes with increased risks for the lender. Interest rates tend to be higher to compensate for those risks, and the requirements for extending a loan are also more stringent, making it difficult for borrowers with poor credit history to obtain a loan for a home in this category.
Also known as luxury mortgages, referencing the idea that they are commonly used to buy luxury real estate, super jumbo mortgages can run into millions of dollars for especially expensive real estate. Lenders usually expect at least 10% of the purchase price as a down payment. Financing options like insurance from government agencies are not available, and lenders can also have trouble finding investors to support pools of super jumbo mortgages because of the increased risks.
In the event of a default, the property is often difficult to move. Luxury real estate requires more maintenance and a savvy real estate agent familiar with the marketing process for this kind of property. The lender may have to invest substantially in the property to make it appealing to potential buyers, and this can result in taking an even larger loss on the loan. As a result, lenders are very careful about offering super jumbo mortgages.
Borrowers interested in this type of loan need good credit, strong employment history, and a down payment for the loan. Some programs specialize in borrowers with particular needs, such as individuals with high net worth who may have temporary problems with the credit reports for a variety of reasons. The lender may offer a loan on the grounds that the borrower's overall financial health is strong, even if she may not have an ideal credit rating when she applies for the loan.
Lenders may carry an inventory of super jumbo mortgages or package them for sale to investors. Investors are more limited for these kinds of loans, and borrowers may be left with a loan portfolio they cannot sell. This is an important consideration for some financial institutions providing super jumbo mortgages, as most want to originate mortgages and then sell them to recoup costs quickly. In an uncertain financial or real estate market, there may be limited interest for these kinds of loan products among investors.
