High value properties can require special consideration when it comes to finding a loan. If the value of the property is higher than the conventional conforming loan limits, a jumbo mortgage could be the best option. If a buyer is interested in investing a few years into the home and then wants to flip the house in a few years, a 5-year ARM could be a decent choice. If you are buying a high value property with the intention of living in it for many years, the 30-year or 15 year fixed rate home loan could be the ticket.
When it comes to deciding which loan is best, consider the factors that apply to your situation. What is the actual value of the home? How long do you plan on owning or living in the home? The answers to these questions can help you determine which loan is best for you.
If the home’s value is over the conforming loan limit (see below), a non-conforming jumbo loan is likely the answer. Be aware, however, that jumbo loans typically carry higher rates and may require additional fees.
Since high value properties are worth more money, they are considered a higher risk from the lender’s point of view. If a borrower defaults on a high value home loan, the lender could potentially lose a great deal of money. This risk is usually offset by lenders charging higher-than-average interest rates.
The standard for conventional conforming loan limits as of 2010:
*$417,000 for most of the US *$625,500 for Alaska, Hawaii, Guam and the US Virgin Islands
If you are purchasing a high value property with the intention of putting it back on the market after a few years, or if you might refinance after a few years, a 5 year Adjustable Rate Mortgage could be the best option.
With a 5-year ARM, the interest is fixed at a lower-than-average rate for the first 5 years. After the five year period ends, the rate will fluctuate, either up or down, once a year for the remainder of the loan. The benefit of the lower interest rate is that the borrower is able to put more money toward principal, leading to the loan being paid off sooner. This is also a popular option for people who anticipate a higher income after the fixed rate period ends
30-Year Fixed Rate
If you are planning on buying a high value home for you to reside in for a long period of time, the 30-year fixed rate mortgage could be a better option for you.
With the 30-year fixed rate mortgage, borrowers have the security of a fixed interest rate for the entire length of the loan. This is a popular choice for borrowers during periods when interest rates are at national lows.
For a high value property, this can mean that even though your home’s value can continue to rise, your interest will not. If you do not plan to stay in the loan for very long, it may not be worth it; talk to your mortgage consultant to compare options.
With a variety of mortgage plans to choose from, American home buyers have more options than ever before. When it comes to purchasing high value homes, be sure to discuss your plans with a mortgage professional. He or she will be able to compare rates, go over loan terms and help you decide which path is the best to take for your home buying journey.