Fitting the Need of Financing Your Luxury Homes


Fitting the Need of financing Your Luxury Homes

Fitting the Need of Financing Your Luxury Homes. Financing and buying a luxury home is different than buying a regular home – so are the financing options.


By Guest Financial Columnist Angelina Brown

Angelina Brown Guest ColumnistFitting the need of financing your luxury homes – The process of buying a luxury home differs from the process of buying a regular home with conventional and conforming financing. The needs of a luxury home buyer are different also and so are the financing options. Now, if you are considering your options for buying a luxury home, it would be important to determine what your options are and what your affordability is. The main difference in between the luxury real estate properties and the ordinary properties is that the ordinary ones are much lower priced in comparison to the luxury homes. Therefore, the need of taking out a large mortgage is more evident in case of the luxury homes. These mortgages are usually jumbo loans or non-conforming loans, and the loan requirements and interest rates are very different   In addition, the process of buying a luxury home is highly time-consuming in comparison to the time required to buy an ordinary home.

Financing the luxury real estates

Most of the investors or buyers harbor a common misconception about the luxury home buyers and that is paying cash on the homes. However, if you consider the reality, you would see that it’s about only 31% who pay for it in cash. Although, this study has been done based on the analysis done on all of the last 12 years since, it still is safe enough to consider that in general all of the luxury home buyers need a mortgage or home loan to buy a luxury home.

Another very common misconception which most of the luxury buyers have is that financing is one of the options which do not have the capacity to compete with the number of cash buyers. However, truth is that as long as the conditions and the terms of the loan offered are good and attractive and if you can offer quite a large down-payment, you will be able to win an equal position along with the cash buyer who may have a good offer, but the cash offer could be less than what the market value of the home is. In this case financing the luxury home purchase with the right financing may have a major advantage.  This report has been put forward by Iyna Bort Caruso in The Wall Street Journal.

What is actually meant by a “large down-payment”? If you can manage to make as much as 30% or more than that on the purchase price, it is considered to be quite a large down-payment against the mortgage.

The approval process followed with regards to the home loan application however, is supposed to take more number of days in comparison to the mortgage approval process, with regards to the ordinary homes. It can even take as long as long as 60 days. There is the requirement for extra documentation and thus it results in an extension of the verification periods. In addition to this, in case of particularly the large mortgages, lenders in some cases may require not one, but more than one appraisal. Therefore, if you can get all of the documents before visiting the lender, it can help speed up the process. The documents you may be required to provide are the likes of:

  1. Asset statements

  2. Your tax returns

  3. The verification on your employment

  4. Proof of your cash reserves

So, this is the main process followed in taking out a mortgage, if you are planning to buy a luxury home.

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