The recent real estate report of May 2012 has given a boost of confidence to companies associated with real estate.  The people who sell luxury homes across the land have even more reason to celebrate.  Improved conditions in the market are enticing more transactions for properties priced at $500,000+.

Defining Luxury Home Loans

Fannie Mae and Freddie Mac, the two largest conventional mortgage lenders, have long held in place some guidelines about loan amounts.  One rule is the maximum mortgage that they will underwrite.  As of this writing that maximum rests at $417,000.  For all intent and purposes, that amount would seem more than fitting for the vast majority of American looking to buy a home.  But you might be surprised to learn that there are lots of luxury homes available in the market.  Between the states of New York, Texas and California there are over 73,000 homes currently for sale priced at $500,000 and higher.  Clearly, these properties will need another type of financing in order to consummate the deal.

Jumbo Mortgage to the Rescue

A jumbo mortgage provides an opportunity for homeowners to acquire homes in the higher price range while enjoying an interest rate competitive with a conventional loan.  However, the jumbo loan has some unique rules.  First, all jumbo loans currently require the buyer to pay 20% of the purchase price as a down payment from the buyer's own funds.  These funds can be savings, retirement accounts or simply cash on hand.  Secondly, the owner's proof of their main income, along with the aforementioned funds, will require sufficient documentation.  Finally, the buyer will need to meet some strict credit requirements.

The Luxury Market

The good news is that this segment of the market has shown real signs of improvement.  Although homes above $1,500,000 account for only 1.6% of the properties sold in all of 2011, there is another statistic.  Homes that were priced in the $500,000 and up have represented 10% of all the real estate sales for 2011.  People are indeed buying these luxury homes and this part of the industry is outpacing the rest of the market.

Advantages of Purchasing Luxury Home

Besides owning a wonderful home, there are several advantages to buying a higher priced property.

  • Faster buildup of equity due to the large down payment and better appreciation.
  • Owning a luxury home places the homeowner in an elite status level.
  • Current low mortgage rates will allow the homeowner to use their funds and income on building up assets rather than have all of it tied to a real estate purchase.

Eddie Stanfield is the owner of Central Coast Real Estate, the premier real estate agency in central California.

Posted by Murphy Realty Group on


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