Luxury Home Loan Financing

Loan amounts for luxury homes can range from the mid $500,000 to $25,000,000 dollars or more. The higher the loan amount, the lesser the pool of available lending institutions.

Usually you can expect to pay a higher interest rate on a high end home or a luxury home. As you are borrowing more money the risk becomes greater to the lender that is lending the money. If you were to borrow 15 million dollars to buy a home worth 20 million there is still a lot of risk involved to the lender even though you have put a 5 million dollar down payment down. As the loan and homes get more expensive, the percentage of consumers that can afford a home that expensive decreases substantially which could make it harder for a lender to resell in the event a default on the loan.

Luxury home loans facilitate the high-end purchase of expensive homes, vacation homes, investment property. They are quite attractive for primary occupants or investors who want to leverage their assets.

Lower interest rates in recent years have made luxury homes an attractive investment. Strong appreciation has encouraged borrowers to take on larger loan sizes.

For the year 2006, the conventional loan limit for one-unit properties is $417,000. Any single loan larger than that amount is considered a jumbo loan, and will have a higher interest rate.

When applying for a super jumbo loan, most lenders like to see liquid assets available after closing. These assets can be stocks, 401k's, IRA's, or any financial account that has a cash value. Most lenders like to see at a minimum 6 months, and as much as 36 months of mortgage payments including Principal, Interest, Taxes and Insurances in reserves.

Typically luxury home mortgages are a bit more conservative on the loan to value. Be prepared to need a downpayment of 20-30% of the homes value when purchasing a luxury home with a super jumbo mortgage.

Luxury Home Loans usually have a maximum Loan-to-Value you can borrow.

Jumbo ARMs are usually the most attractive option for Luxury Home Buyers. Most well to do buyers like to use leverage and keep their money working in the market rather than paying down the principal of their home.

If you are able to make a down payment large enough to reduce your principle loan amount to less than $417,000 you will qualify for better interest rates because the loan amount is within conforming limits. If you decide to take a jumbo loan keep in mind that when the loan amount is low enough you may be able to save thousands in interest payments by refinancing into a conforming loan.

Luxury home loans are usually associated with jumbo and super jumbo loans. There are a few niche lenders that specialize in this type of financing. Luxury home loans will require at least 20% equity due to the high risk associated with these type of loans.

» DISCLAIMER: The information contained in this article on 'Luxury Home Loan Financing' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.