Mortgage Facts Every Luxury Home Buyer Should Know
Luxury home mortgages and traditional home mortgages have some fundamental differences that buyers should be aware of prior to purchasing a luxury home. Although this depends significantly on location, a luxury home is generally considered to be $500,000 and up. Unless the plan is to pay in cash, there is information that every luxury homebuyer should know about their mortgage before beginning their search.
What is a Jumbo Loan?
When a buyer borrows over $424,100 this is called a jumbo loan. These mortgage loans are called jumbo loans because they are not completely covered by government sponsors FannieMae and FreddieMac. Since FannieMae and FreddieMac won’t buy these jumbo loans that makes them a higher risk for banks, which usually leads to higher interest rates.
An important thing to keep in mind when purchasing a luxury home is that the details of each loan can differ since rules will vary depending on the lender. Something you should expect most lenders to be looking for is a credit score over 680 and liquid assets in case there should be a loss of primary income. Keep in mind that a higher credit score often means lower interest on your mortgage. Some lenders may have limits to how much they will administer for a loan, as well as limits on acres of property.
Additionally, obtaining a luxury home mortgage often takes longer to close than a traditional mortgage would. This means mortgagors want to start their pre-approval process early and be prepared to present a lot of paperwork. Those who are self employed should assume this process may take even longer in order to prove their income.
When obtaining a luxury home mortgage something else that may slow down the process is the underwriting review. An underwriting review is done to ensure that all the documents and information pertaining to the loan are present and correct. When dealing with a luxury home mortgage, the underwriting review is often done more than once.
Those obtaining luxury home mortgages may also be asked for more than one appraisal on their house, as compared to the typical single appraisal for a conventional home mortgage. If the appraisal is less than expected the borrower may have to pay cash to make up the difference.
Buying any home is a detail-oriented process. These details become all the more important when dealing with a luxury home. Although the process may take longer, with these facts you should feel confident and prepared to begin the process of purchasing your luxury home.
Are you ready to explore your homebuying options? If so, contact me to learn how I can help.