So you’re looking into your dream luxury property. This home has everything you’ve ever needed and more. Even greater, that home is located in Summit County where excitement and relaxation never stops. If you’ve ever been through a traditional home loan process, you already know that, although the mortgage process can seem daunting, there is a steady path through paperwork and the approval process.
In the most general sense, a mortgage loan is a secured loan that is specifically designed for real estate such as a home or property. For all intents and purposes, the property is owned by the borrower in exchange for monthly payment installments. Once the loan is paid, the property changes hands from the borrower to the homeowner. There are many types of mortgage loans that are available, but the most common you’re likely to encounter are fixed-rate mortgages, FHA mortgage loans, and adjustable-rate loans.
However, does any of the standard loan process change if your future home is considered a “luxury property”? The answer is, of course, both yes and no. Conventional or traditional loans differ from a luxury home loan in how the lender may view the applicant, how long a loan might take to be approved, and the various options a potential homebuyer should consider.
Know if Your Home is Considered a Luxury Property
A luxury property isn’t always simple to define. A large property in a rural area of upstate New York, with the asking price of $600,000 may be considered a luxury home depending on its location. However, in another part of the country, like California or Colorado, the very same asking price might be considered a standard or even low price. This alone can affect the way a lender might see an applicant. It shouldn’t be a surprise that in these latter areas, a homebuyer will generally need a healthy credit score to be considered for a loan. The applicant may become more favorable if they have liquid assets, to prove that they continue to pay their loan in the unfortunate chance they lose their source of primary income.
What will you need when meeting with a potential lender? If you’re ready to apply for a luxury loan, be sure to have all proper documentation ready to go. A lender will need to assess your accumulated wealth before they can approve the loan. These luxury loans, often seen as “jumbo” loans will have different terms depending on the lender. As jumbo loans and luxury mortgages don’t come with the standard set of terms that a conventional loan might have, a homebuyer can obtain a loan for as little as a 5% down payment. Where some lenders might place specific restrictions on your loan, others might not. Be prepared to find a lender you can trust and a loan that works in your favor.
Think Like a Lender
Before you venture into mortgage options, it pays to think like a lender. Come prepared with paperwork and a plan to answer challenging questions about your ability to pay. Plan for loan approval to take more time than an average loan, as your lender may decide they need to check any important details several times over.
Although it may not be at the forefront of your mind, remember that luxury homeowners are more likely to see substantial rate increases depending on where the home or property is located. Assume that, unlike a conventional loan, your lender will seek several appraisals before the bank approves your loan, may apply a loan limit, and closing periods will be longer than average.
By Coldwell Banker