How to Finance a Southern Maryland Luxury Home

Kimberly Bean
Kimberly Bean
Published on November 28, 2017

Buying a Southern Maryland luxury home is a slightly different process than buying a conventional or tract home. More money is passing hands, so naturally the risk escalates.

The process is slower, too, so if you plan to purchase a luxury home – and you won’t be paying cash – you’ll most likely need to get a jumbo loan.

What is considered a luxury home?

Would it surprise you to know that price isn’t the only thing that determines a luxury home? While the concept is best defined by perception, here are some other characteristics of luxury homes:

  • Desirable location
  • Distinctive architecture
  • Amenities

Since everything concerning real estate depends on location, a basic defining point of a luxury property is “a home that goes above and beyond what’s typical for the market,” according to Devon Thornsby, real estate editor at U.S. News.

What typically doesn’t differ in the luxury home market is how the home is financed. If you’ll be pursuing a jumbo loan to purchase the home, you’ll need to start the loan process well before you shop for homes.

What is a jumbo loan?

You’ll need a jumbo loan — also known as a non-conforming loan — to purchase a property that is priced higher than Fannie Mae’s and Freddie Mac’s conforming loan limits. For 10 years, the conforming loan limit has stood at $417,000 for a single-family home.

That changed last year, when markets heated up and prices began to soar. The limit is now $424,100 for most regions across the country (it is higher in certain high-cost counties, such as some in California).

Find your county’s loan limit at Bankrate.com. Click on your state, and you’ll be taken to a list of counties and their corresponding conforming loan limit.

Qualifying for a jumbo loan

Jumbo loan requirements are more stringent than those of a conventional loan, and they vary by lender. You will usually need a higher credit score (typically 700 or higher). Generally, a 10 percent down payment is required, although borrowers with high credit scores can find mortgages with a 5 percent down payment requirement.

The good news is that, in their pursuit of wealthy clients, some lenders are willing to waive the private mortgage insurance (PMI) requirement on these low-down payment loans.

But, like all loans, you’ll need to prove that you can make the monthly payment.

This means proving:

  • A stable employment history – at least two years with your current employer or two years of tax returns to prove self-employment.
  • An explanation of what you do for a living if its “value” isn’t as obvious as, for example, a physician or CEO.
  • Proof of your income – Lenders want to see not only pay stubs, but bank statements as well (even the blank pages, believe it or not).
  • Proof of your down payment funds.

You will need to be able to document your assets, show a high credit score (the average score for the jumbo loan in the first quarter of 2017 was 771), and show proof of a responsible credit history.

Jumbo loan expenses

As of the first quarter of 2017, jumbo loans were actually cheaper (by 21 basis points) in the long run than conforming loans, according to a report released by Core Logic.

In August of this year, for instance, interest rates on these loans tumbled to where they were “13 basis points lower than the conforming rate, the largest spread between the two since March 2016,” according to CNBC’s Diana Olick.

But be prepared for higher closing costs because there are additional steps in the qualifying process. One example of an extra step is a lender who may require two appraisals of the property.

It may even out in the end, however, with the aforementioned sweetening of the pot to attract wealthy clients. Not only are some lenders waiving the PMI requirement for low-down payment jumbos, but they are also accepting borrowers with low credit scores.

If you’re interested in pursuing a jumbo loan, contact us! We will put you in touch with local lenders who can answer all your questions.

Brandywine MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309

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