You’ve likely heard the terms “conforming loan” and “jumbo” as it relates to the mortgage industry. A conforming mortgage is one that conforms to Fannie Mae or Freddie Mac guidelines. When a lender approves a loan using conforming guidelines the lender then has the ability to sell that loan directly into the secondary market. Selling the loan replenishes the lender’s line of credit, giving it the ability to continue making more loans.
One of the primary conforming properties is the maximum loan amount. The current maximum conforming loan limit for most locations is $510,400. However, most of California is classified as a “high cost” area the 2020 Conforming Loan Limits can be as high as $765,600. Anything above that amount is considered a jumbo loan.
A super-jumbo loan is one that has loan limits even greater than current jumbo loan limits. Many lenders identify a super-jumbo loan as loans where the amount is greater than $2,000,000 while others place the threshold for a super-jumbo at $3 or 4 million. This is especially true in higher cost locations like San Fransico and Los Angeles where home prices are some of the highest in the country. In short, the definition is very regional and depends on the property location.
A super-jumbo loan will have more rigid requirements compared to a conforming or standard jumbo loan. Both super-jumbo and jumbo do not have a robust secondary market in which to sell the loans. This means it’s the lender or bank that often carries the entire risk of approving the loan. The lender sets its own internal guidelines for approving a super-jumbo. This then translates into requiring a greater down payment and higher credit scores.
What sort of down payment is common with a super-jumbo mortgage? Regular Jumbo mortgages are limited to 95% in California for qualified buyers. With a super-jumbo loan, the minimum down payment is often greater with some programs requiring 10 – 20% percent. All of these variables really depend on the property location, buyers credit profile and loan amount.
Buyers can read all the down payment and credit requirements on the Jumbo Purchase page. Please call us today with any questions.
As it relates to qualifying credit scores, super-jumbo loans will ask for near-perfect credit. For comparison, a conforming loan can accept a loan with a minimum credit score of 600 to 620. With a jumbo loan, this minimum credit score can be as high as 680-700. For super-jumbo loans, the minimum credit score should be 740 or even higher. Flexibility is often allowed for home buyers that have a significant down payment.
Super-jumbo loans are typically offered as a normal fix rate or adjustable rate mortgage/hybrid. The adjustable-rate mortgage, or ARM, can adjust once every six or twelve months, depending upon the program. A hybrid loan is an ARM that is fixed for an initial period of time. A 5/1 hybrid, for example, has an initial rate that is fixed for five years before turning into an ARM that can adjust once per year. A 7/1 hybrid is fixed for seven years, and so on. Most hybrids cap out at 10 years and listed as a 10/1 ARM.
As it relates to value, lenders rely on the appraisal and not the sales contract. As with other types of loans, super-jumbo purchases require an appraisal that lists at least three other properties in the subject property’s area that have sold within the previous 12 months. This can sometimes be a problem as the number of higher-end homes is much smaller compared to conforming and jumbo. Again, the lender does have some leeway with appraisals but most often it means lenders will want more than three recent sales.
It should also be noted a super-jumbo borrower can expect to pay for at least two separate appraisals. With a super-jumbo loan, the appraisals are scrutinized just as much as the creditworthiness of the buyer. The appraisals will be reviewed both as a “desk review” where the underwriter reviews the appraisal at the office or a field review where the lender sends out yet a third appraiser to inspect and review the property.
Finally, interest rates will be slightly greater for super-jumbo loans compared to other loan types. How much higher depends upon the lender issuing the guidelines but a rate that is 1 percent higher than conforming or jumbo rates is not uncommon. These higher rates are one reason why many super-jumbo buyers take the hybrid option in order to get a lower rate. Still, the super-jumbo hybrid will still be slightly higher than those that fall into the jumbo category.
Buyers that want to learn more about all purchase and refinance requirements can reach us by calling the number above, or just fill out the Quick Contact Form on this page for fast service.