Only The Strong Survive: The Luxury Home Buying Experience

You may have purchased real estate before but taking the plunge into the world of luxury property ownership is like no other experience. Individuals who take out loans exceeding $421,000 are sometimes considered jumbo mortgage holders, depending on the real estate market in the area, and are, hence, subjected to a more arduous process than the average borrower. Deciding to use credit instead of cash to purchase the expensive dwelling place of your dreams takes a lot of time, energy, and precise planning. 

The desire to own something luxurious is not uncommon and this is why there are so many financing options available out there. Evidently you need to be in the position to afford any commitment you make but with the right circumstances there is no reason you cannot have a smooth and efficient luxury home buying experience. There may be obstacles to overcome but the end result makes it more than worth it.

The Jumbo Loan

A jumbo loan is one that is not eligible for purchase by either FannieMae (FNMA) or FreddieMac (FHLMC). These government entities serve as buyers in the secondary mortgage market that purchase home loans granted to consumers by banks. FannieMae and FreddieMac give financial institutions the leverage they need to expand and continue to grant home loans to eligible applicants. The entities, however, do not typically purchase loans from banks that are more than $424,100. This means that banks are forced to keep these advances, which are called jumbo loans, on their books. The financial institution responsible for granting a significant advance, then, shoulders the entire burden in the unfortunate instance of default. 

With the risk of jumbo loans being so great, banks are more cautious of who they approve for advances exceeding $500,000. The best mortgage lenders of 2017 usually require applicants to fill out paperwork along with a thorough investigation of income and employment. Those approved for jumbo loans have higher interest rates than borrowers receiving traditional mortgages from banks. 

The Underwriting Process for Luxury Loans

All advances go through a single underwriting process. Jumbo home loans, however, tend to undergo two or more confirmations. Banks that solicit financial support from investors to fund luxury home loans invite such funders to let their private underwriters overlook information before agreeing to the contract. Borrowers, then, may find themselves under scrutiny several times over before receiving approval or denial of their application for a mortgage. 

The arduous process of obtaining a jumbo loan for luxury real estate is why prospective buyers should go through the pre-approval process before viewing homes. Such is particularly the case for self-employed applicants who cannot provide proof of steady income by traditional means of W2 forms. These borrowers may be required to submit documents about revenue and source of employment until the loan closes. The luxury home of your dreams may be around the corner, but the process of getting into it may be filled with several bumps in the road if you do not prepare. 

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