What Types of Home Loans are Ideal for Purchasing Prime Real Estate?
Have you ever been to the Hamptons in New York? What about Las Olas Isles in Fort Lauderdale? These areas are home to some of the most luxurious real estate properties you’ll ever see!
Unfortunately, the average joe doesn’t have a few million dollars lying spare in their bank account to buy a swanky home. That’s why it’s common for people to take out a mortgage to purchase prime real estate—but what type of home loans suit this endeavor?
Here’s a look at three types of home loans that are perfect for people looking to invest in prime real estate.
1. Jumbo Non-Conforming Mortgage Loans
What Are They?
Jumbo non-conforming mortgage loans—as the name suggests—are high-value home loans that don’t conform to the requirements set by Freddie Mac (the Federal Home Loan Mortgage Corporation) and Fannie Mae (the Federal National Mortgage Association). In other words, it’s possible to take out a jumbo loan for any amount higher than the $647,200 limit set by the Federal Housing Finance Agency (FHFA).
In cities like New York, where average living costs are higher than the national average, the FHFA has set a higher loan limit of $970,800. However, it only takes a glance at the New York housing market to know that prime real estate costs several million dollars in the empire state. Therefore, if you want to invest in prime real estate in New York, you’re better off applying for a jumbo loan than a conforming loan!
Why Are They Ideal for Buying Prime Real Estate?
Did you know that theoretically, there’s no limit to the amount you can borrow through jumbo non-conforming mortgage loans? This is a massive advantage jumbo loans have over other types of loans. No matter how expensive your desired property is, jumbo home loans bring you one step closer to buying it!
In addition to high loan limits, jumbo loans also offer substantial flexibility—although this depends on a few factors. For instance, if you make a big down payment, you gain leverage to negotiate lower premiums on your jumbo loan with the mortgage lender. Alternatively, if you’ve got a good relationship with the mortgage broker and a history of paying debts back on time, you might be able to negotiate favorable terms on a jumbo loan.
Drawbacks
Unfortunately, the application requirements for jumbo home loans are extremely stringent. Most mortgage consultants only issue jumbo loans to borrowers with a minimum credit score of 700. Moreover, it’s common for lenders to ask for a down payment of up to 30% of the value of the property being purchased. Prime real estate in places like Manhattan costs as much as $47 million for a single property. Therefore, it’ll cost millions of dollars just to secure a jumbo loan in these areas!
2. Mixed-Use Financing
What Is It?
Mixed-use financing refers to home loans people take out to buy properties that serve both residential and commercial purposes. For instance, a condo with a luxury retail outlet at the bottom qualifies as a mixed-use building. Therefore, if you require financial assistance to buy this type of property, you have the option of using mixed-use financing.
Why Is It Ideal for Buying Prime Real Estate?
Mixed-use home loans are great for buying prime real estate because their limit depends on the profitability of the mixed-use building’s commercial tenants. For instance, if your commercial tenant’s income makes up 20% or less of your total rental income from a mixed-use building, Fannie Mae will insure your mixed-use loan.
In other words, buying prime mixed-use real estate for millions of dollars is possible with a Fannie Mae-insured conforming loan. As long as the majority of your rental income is from residential tenants, you’ll qualify for a federally insured, high-value mixed-use loan!
Drawbacks
Unfortunately, mixed-use financing requires a down payment of up to 35% of the appraised value of the mixed-use building. Therefore, if you’re buying prime mixed-use real estate, you’ll be parting ways with millions of dollars before you earn your first penny from renting it out!
Additionally, the more expensive a mixed-use building is, the longer it takes to obtain mixed-use financing. This is because it takes longer to do the research and background checks necessary to underwrite high-value mixed-use buildings.
3. Investment Property Loans
What Are They?
Investment properties are bought for the sole purpose of earning an ROI. It’s common for investors to treat prime real estate as investment properties because they generate above-average rent payments. Additionally, the profit from selling prime real estate after it appreciates tends to be much more than other forms of real estate.
Why Are They Ideal for Buying Prime Real Estate?
Investment property loans are typically subject to a maximum down payment of 15% to 20%. In other words, they’re ideal for buyers looking to finance prime real estate without breaking the bank.
Drawbacks
Unfortunately, investment property loans are only issued to borrowers with a credit score exceeding 600. If your credit score is below 600, mortgage lenders will doubt your ability to successfully invest in the property market—especially if you’re interested in prime real estate!
Have the three home loans we’ve discussed today piqued your interest? If so, why not sit down with one of our expert mortgage consultants at Atlantic Home Capital to discuss them further!
We’ve gained a ton of positive reviews for helping clients apply for all sorts of home loans, including jumbo non-conforming mortgage loans and investment property loans. We also assist clients in applying for Mixed-Use Financing Ft Lauderdale and pre-qualify prospective borrowers through our online form.
If you’re keen on investing in prime real estate with the help of a top Licensed mortgage lender NY, get in touch with us today!
