Posted on: 20 June 2018
If you're trying to buy a luxury home, it's likely that you're going to need a jumbo mortgage. Jumbo mortgages are mortgages that generally exceed a certain property value, normally around $500,000 to $700,000. Jumbo mortgages represent more risk, and consequently, not all banks will offer them. You may also need to meet some additional qualifications. Keep reading to learn more about qualifying for a jumbo mortgage for luxury home sales.
Be Wary of ARMs
First, before you move forward, you should be aware of adjustable rate mortgages. Adjustable rate mortgages (ARMs) are mortgages that start off at very low rates, so you can afford to purchase a larger house. Though they begin at low rates, they don't maintain those low rates; interest rates go up over time. This can quickly make a property unaffordable.
Many individuals purchase luxury homes with an ARM based on the idea that they can refinance into a conventional loan later on. If this doesn't happen, however, they can end up spending much more than they anticipated on interest.
Your Property Will Need to Make the Cut
No mortgage lender is going to approve a property unless they truly believe it's worth the value that it's being sold for. This can complicate things in luxury home sales. In luxury home sales, the value of the property can be up for debate, especially as the home itself usually has little in common with other "comparables" in its area.
You may need to get a second opinion from an appraiser before you get a loan from a bank. The bank is going to want to see evidence that the home is worth that much, and (perhaps most importantly) that the home can sell for that much.
You Likely Need a Larger Down Payment
For most jumbo mortgages, you're going to need a larger down payment than a conventional mortgage. For the best rates, you should usually be able to put at least 20% down. Less money down means a higher risk for the mortgage lender, which in turn means that interest rates will need to go up. Luxury home loans are available without a conventional, 20% down payment, but the interest rates may be less than ideal.
A jumbo mortgage is often the only way to get a luxury home, unless you are prepared to put down a significant amount of cash in order to get a conventional loan. Your mortgage lender can help you review your options and figure out whether a jumbo mortgage is right for you.Share