REAL ESTATE FINANCING 101: ESSENTIAL TIPS FOR BUYING HIGH-END PROPERTIES

Buying a luxury home can be a process that is as exciting as it is frustrating. With significant competition in many major housing markets, you’ll find that having a bullet-proof strategy is critical when it comes to getting the home of your dreams. Careful planning will go a long way here, which will hopefully include the skills of an experienced real estate agent. Before you search, consider these important financing tips for buying high-end properties.

You’re likely aware of what a real estate agent brings to the table for a buyer. They greatly simplify searching for homes that match your needs and wants, saving you a substantial amount of time and hassle. Additionally, their skills at negotiating will go a long way in securing the best deal possible for your luxury home or condo. And you’ll find great value in their professional recommendations regarding finding a trusted contractor, home inspector, or lending institution. But when buying luxury real estate, there is even more that a real estate agent offers clients.

You will want an agent specializing in luxury properties for the most exclusive properties. These agents will have built up the contacts in certain necessary circles when finding high-end homes and condos. A good number of ultra-luxury properties cannot be found in an internet search or on an MLS listing, meaning they are sold solely by word of mouth—here is why:

Due to the high profile of many property owners, word-of-mouth sales protect their privacy. This means that an agent must be well-connected to know about the properties in this niche market. An experienced luxury real estate agent will put their contacts to work in finding the perfect home, which most agents cannot do.

An important financing tip for buying high-end properties involves some homework on the buyers' end. Anyone wanting to enter the luxury real estate market will need to know how much home they can afford and how to finance it.

A mortgage broker will require that you provide them proof of income and recent federal tax returns. After pulling your credit report, they will use this information to calculate your income-to-debt-ratio. This number will show how much home you can afford. But depending on what lender you are considering, you might not be able to get financed with even the most perfect financial scoring.

Luxury homes are typically higher than the conforming loan limit set by the government for federally backed loans. This can range from $700K to $1.1M, depending on where you are looking for property. This means you will need to find a lender offering jumbo loans.

Find a lender through your broker that offers these mega-sized home loans. As each lender will have a maximum loan amount for jumbo loans, be sure that the one you select will offer the loan amount required to get the home you’ve got your eye on.

Of course, you can greatly increase your financing options if you are prepared to spend a good amount of cash on the purchase.

The phrase “cash is king” is perhaps the most commonly recited financing tip for high-end buyers. Cash transactions greatly reduce closing times from months to weeks, making them a lot more attractive to sellers of luxury real estate. But even though you might not want to liquidate the assets necessary to fully finance a luxury property, having enough cash down can make the lending and purchase of these homes much easier.

Jumbo loans will likely require a down payment that is a minimum of 10%, with some lenders wanting as much as 20%. The more you put down, the lower the payment, of course.

One option that some home buyers utilize involves making a cash purchase upfront. Then, the buyer will take out a loan and offer the home up for collateral. In times of lower interest rates, this strategy is more popular. It will secure a loan while at the same time giving the homeowner the option to invest the proceeds into accounts that generate a rate of return that is higher than the interest rate that they are paying.

But you’ll also discover you can use more than cash to secure these transactions. Assets can be a great tool in helping you get the financing you’ll need for the high-end home you’ve got your eye on.

Some buyers of luxury properties will leverage various forms of securities to get a loan. Stocks, bonds, and other assets can be offered as collateral, making for creative financing options. A combination of cash, financing, and collateral can be used to get hybrid financing for any property, particularly those listed with luxury real estate prices.

Investing in luxury property can be a rewarding experience, but is one that should be carefully considered. Tying up a substantial sum of money into a property isn’t one that should be taken lightly and should involve the input of a trusted financial advisor and an experienced real estate agent.

If you want to invest in high-end real estate, the dedicated agents at Bay Area Fine Living have the experience and necessary contacts for securing luxury properties. Consider consulting with one of their agents before you begin the quest to find the luxury home of your dreams.