You’re finally in the position to buy your dream home!
Whether wealth came to you fast or slow, you want to make sure you make the right decision. While buying any home is often the same regardless of the price, there are things to remember with luxury homes. With these 4 tips (and a bonus tip at the end) you’ll be in a better position to shop for a luxury home with confidence.
Know Your Financing
When getting financing for many homes, a conventional loan covers the price of the home. However, for a lot of luxury homes, a conventional loan may not be enough even with a 20% down payment.
Conventional loans currently have a limit of $625,000. Your down payment needs to cover the difference between the limit and the home’s price.
Let me explain. To purchase a home for $1,000,000 using a conventional loan, you’d need a down payment of at least $375,000. This is a 37.5% down payment. $375,000 is the difference from the home’s price and the loan’s limit. Homes starting around $800,000 will need a down payment of over 20% to keep it to one conventional loan.
An option to get enough financing is to get a jumbo loan. A jumbo loan is a loan that goes above $625,000. Unfortunately, the interest rates will be higher with this loan. This is because you’re putting the lender at greater risk from the higher amount.
A way around this is to get a first and second mortgage on the same home. One loan would be for the amount of $625,000, while the second loan would cover the remaining amount. The remaining amount is what’s left over after you subtract your down payment and $625,000 from the home’s total cost.
Be sure to talk to your local lenders for up-to-date loan information and the best options for your financial situation.
When buying a luxury home, you’ll likely use the equity in your current home to put towards your new home. In most cases, you’d have to sell your home and find a temporary place to live while looking for a luxury home. Or you’d need to do back-to-back closings to make your current equity available. This means you’d sell your current home while buying a new home and syncing the closing dates to happen around the same time. This can be a very cumbersome process.
What I recommend in this situation is doing a loan recast. With a loan recast, you’re able to purchase your luxury home, sell your other home afterwards, and then take the equity from the house you just sold and apply it to the loan for the luxury home. Since this isn’t a refinance, there are no fees, your interest rate won’t change, and your payment schedule won’t reset.
Doing a loan recast applies the equity from your previous home to the principal amount on your luxury home loan. The lender works that amount in as if you put it in when first getting your loan. This keeps your interest rates locked in, your payment schedule on track, and lowers your monthly payments.
Keep Your Poker Face On
Many luxury homes have security systems. Because of this, you need to assume, if not obvious, that the home you’re looking at has cameras with microphones in it. While I don’t want to paint the picture that every homeowner is eavesdropping, this gives them the opportunity to listen in and watch a showing in action.
You want to keep your cards close when in the market for a home. Making comments about how much you love the home, that you need to live there, or that you’d be willing to pay the asking price or above shows your hand. This puts the owner of the home you’re looking at in the driver’s seat with negotiations.
You should certainly discuss all these things with your real estate agent, but wait until you’re outside the property to discuss those things.
Don’t Assume What’s Staying
Luxury homes have a lot of amenities: high dollar pool equipment, Control4 systems, camera systems, wine fridges, custom window treatments, ice machines, etc. You want to make sure you’re crystal clear about what’s staying and what’s going.
In real estate, we classify property as movable or permanently attached. Permanently attached items stay with the home but movable property goes with the seller. The seller can choose to sell you those items or include them in the home, but they’re not obligated to do so. When it gets to amenities, it can get tricky about what’s staying and what’s going, so the best thing to do is not assuming.
Include in the contract all the items you’d like to remain with the home. This won’t guarantee that you’ll get them all, but it will define everything you want included. Doing this will get everyone on the same page, so there aren’t any surprises on your final walk through or even worse after closing.
Bonus Tip: Use an Agent
Make sure that when you’re looking to buy a luxury home, you’re using an agent that specializes in the luxury market. You want someone that is experienced working in these price points and with this clientele. This ensures that you’re being given the best options on what and how to buy!
If you’re in the Greater Baton Rouge area, I’d love to be your agent and assist you with this process if you don’t already have one. Contact me or click here to visit my website and see what’s available. You can find my contact information below.
Getting that dream home is an exciting goal to achieve! With these 4 tips, you’re in a better position than most to make this decision with confidence. I’m looking forward to working with you personally if you’re in my area and in the market for one!