As we see month to month in the sales report for Chicago real estate, there are luxury properties, and there are ultra luxury properties. So it’s no surprise that there is a mortgage loan that takes luxury to the next level as well.
Meet the super jumbo. The term refers to home loan financing in, well, super jumbo amounts—usually at least $2 million but reaching all the way up to $20 million or higher.
Even though these loan amounts are larger than large (and therefore carry a larger risk), many lenders are seeing super jumbo financing as a sweet spot for their wealthy clientele. The Wall St. Journal recently reported that financing loans of this size have gotten significantly easier in the least year.
The big difference between financing a super jumbo loan and a conventional or jumbo loan is that borrowers carry a high net worth, and are choosing—not needing—to borrow the money to purchase a home. Qualified buyers can generally find financing of this size at big banks where they are typically already customers, but some smaller, local lenders may be willing to work with their best customers as well.
But if you’ve got the cash, why borrow? With interest rates as low as they are, borrowers may very well find that their cash will earn a higher yield invested elsewhere. The super jumbo loan allows a buyer to keep their investments where they please and simply make a monthly mortgage payment.
If you’re considering purchasing a luxury Chicago real estate and think a super jumbo loan might be the answer, here are a few things to consider:
Credit still counts. Borrowers still must prove excellent credit—a minimum 740 credit score. Just having the cash but not the reputation to back it up won’t cut it.
There may be stricter underwriting. A super jumbo borrower may need to put down a larger down payment or show more cash reserves than a traditional borrower would. One reason could simply be inventory: with properties moving quickly and not as many luxury homes as there are luxury buyers, buyers may end up paying more for a home than it is appraised for.
Guidelines may vary. Some banks have super jumbo loan requirements that live under a certain amount-borrowed threshold; others may determine the rules and regulations on a case-by-case basis.
Consider both a fixed and an adjustable-rate mortgage. As the amount of a jumbo or super jumbo mortgage goes up, many borrowers are more attracted to an adjustable-rate mortgage, as many only hold a mortgage for 3 to 5 years. But high-net-worth borrowers might consider the old-fashioned 30-year, fixed-rate loan to lock in today’s unbeatable rates.
Other assets may count. Some banks might allow borrowers to pledge a portion of their stock portfolio if cash reserves aren’t an option. This works similar to a margin loan: if the market declines and the borrow doesn’t have cash to make the mortgage payments, the lender may sell those assets.
If you’re looking at a super jumbo loan, Chicago’s super jumbo homes certainly make a case for their ultra-luxury price tag. Mansion-esque square footage, sprawling outdoor space, seemingly limitless amenities and luxury features down to every detail. To learn more about high-end properties on the market now, contact me at (312) 498-5080 or email me at [email protected]