What Is a Jumbo Loan or a Super Jumbo Loan?

A jumbo loan, also known as a jumbo mortgage, refers to mortgages in amounts which exceed the limits set by the Federal Housing Finance Agency (FHFA) for conforming loans. Due to its non-conforming nature, a jumbo loan cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac.

Because of the higher cap on its size, a jumbo loan is usually taken out in order to finance luxury properties and homes in highly competitive, expensive real estate markets. Due to the increased size of the loan compared to conforming loans, jumbo loans typically have higher interest rates than conventional loans. For the same reason, jumbo loans will also be more difficult to qualify for and obtain and usually require a better credit history and a larger down payments than conforming loans.

A super jumbo loan offers an even larger loan amount than a jumbo loan. A super jumbo loan can be up to 10 times the size of a jumbo loan.

Jumbo loans and super jumbo loans have several advantages over conforming loans. Most notably, you can obtain more financial support for your purchase, with higher debt-to-income ratio and high percentage of loan-to-value (LTV).

However, jumbo loans and super jumbo loans also have drawbacks. Applying for jumbo loans and super jumbo loans will require stricter and more imposing qualifying requirements. A larger loan also means larger repayment requirements. The monthly payments required for these loans will often be very high, and you will need a consistent, high level of income in order to make these payments. If you are too optimistic about future income levels, you may end up failing to meet your repayment obligations.

If you are considering applying for a jumbo loan or even a super jumbo loan, you will need to carefully evaluate the monthly repayment requirements, the interest rate, the mortgage period, and other factors. A jumbo loan (and especially a super jumbo loan) should only be used to purchase high value property when you are certain that you will be able to afford to repay these high-value mortgages.