Options For Super Jumbo Loans

By Mitch Reynolds · Leave a Comment

Many people don’t understand why super jumbo loans can be more difficult to get than regular mortgage loans, and for good reason. While the amounts requested in super jumbo mortgage loans are higher than traditional loans, most of the time the people purchasing larger homes also have more assets, more income, and higher credit ratings…so why is a super jumbo loan harder to get?

Well, to answer this question is it good to first look at what is a super jumbo home loan. Simply put, this is a loan that is in excess of $650,000. Because of the higher amounts for both super and jumbo loans they do not quality for the government assistance that traditional loans qualify for, and this is one of the biggest reasons why these loans are harder to get.

At the heart of the mortgage industry is the giant semi-government run (basically government run now) entities known as Fannie Mae (FNMA) and Freddie Mac (FHLMC). These entities are subsidized by the government in order to enable households to more readily afford a home. This subsidy is done by allowing these two corporations to borrow in the bond markets at rates that are very close to treasuries (which are government issued securities and are considered some of the, if not the, most safe securities in the world). They can borrow at these rates because of the explicit (used to be implicit but since the financial crisis it has now become explicit) backing of the federal government.

So, this is the first reason why super jumbo loans rates are higher than traditional loans—no federal backing, which makes the loans harder for banks who originate the loans to then package the loans and sell them to other investors. However, this is not the only reason why a super jumbo home loan is more expensive and harder to get. Loans that are higher in value are usually associated with luxury homes. Traditionally, when luxury homes are foreclosed they are much harder to resell, as there is less demand for luxury homes than other less-expensive homes. This also increases the cost of the jumbo loan and leads to higher rates.

However, this does not mean that you cannot get such a loan—you do have options. You may have to put a higher percentage down (generally 5% higher than you would have to pay for other similar mortgages) but there are plenty of lenders willing to lend you the money in that case. Another trick is to put enough down to bring the loan below the current limits set by the federal government, or refinancing the super jumbo loans as soon as you are able to pay down enough to get you below that threshold. Doing so may save you thousands of dollars each year in interest (as the typical spread between super jumbos and regular loans is around 0.5%).