In most countries and areas, you will be required to pay a higher interest rate if your home mortgage loan is substantially larger than what’s considered “normal” for the area. So, even with excellent creditworthiness and a highly valued home as collateral, you may end up paying a high interest rate simply because you want to borrow a lot of money. This is an important factor to consider when you are looking at real estate. The interest rate that you were quoted for a $400,000 home mortgage loan may not be valid if you wish to borrow $600,000 instead, and so on.
Why is it like this? Well, one big reason is the fact that homes that are considerably more expensive than other homes in the area tend to be more difficult to sell. Fewer people are interested in (and capable of) buying them. This means that if the borrower defaults on the loan and the property goes into foreclosure, it can take a long time before the lender manages to sell the property.
Another contributing factor is that quite a few lenders wish to sell the loans to investors looking for interest income. Debt can be sold either individually or in packages. Finding investors willing to purchase really big mortgage loans is often quite difficult, especially when the debt exceeds $1 million. Investors tend to prefer spreading the risk by purchasing five $200,000 debts instead of one $1 million debt. In the United States, it can be very difficult for a home buyer to obtain a really big loan unless the lender manages to find purchasers of the debt before the loan is approved.
If you are interested in obtaining an extra large mortgage loan, don’t be surprised if the lender asks you to pay a larger (percentage-wise) down payment than what you would for a smaller mortgage loan. Also, the lender may decide that the property must be appraised by two independent appraisers.
In the United States, this type of home mortgage loan is known as a jumbo mortgage (loan) and most lenders use the Government-sponsored enterprise (GSE) guidelines to determine where to draw the line between standard home mortgages and jumbo mortgages.
For the year 2014, the GSE guidelines considered a single-family home mortgage loan larger than $417,000 a jumbo mortgage for the continental USA. Alaska, Hawaii, Guam, and the U.S. Virgin Islands have, on average, higher single-family home prices than continental USA, and the limit for these areas was therefore set to $625,00.
Super jumbo Mortgage
In the United States, really big jumbo mortgage loans are sometimes referred to as super jumbo mortgage loans. There are no national guidelines available, but many lenders will consider a $650,000+ home mortgage loan a super jumbo loan in continental USA.