Financing Your Luxury Home in Today's Challenging Lending Climate

As we all know, the U.S. is in the midst of a credit crunch.   Financing has become more restrictive in all areas of the housing market.   The luxury market is no different.  

Here is what you can expect today when financing your luxury home:

• For sales prices $1,250,000 to $2,500,000 plan on at least 20% - 25% down, having good credit, and be willing to fully disclose your personal and business income and assets.    The lower your credit score goes, the higher the down payment required.   If you have to go with a stated income loan, plan on 25% - 30% down.

• For sales prices $2,500,001 to $3,750,000 plan on at least 30% - 35% down, having very good credit, and be willing to fully disclose your income and assets.    If you have to go with a stated income loan, plan on 40% - 50% down.

• For sales prices over $3,750,000, plan on 40% to 50% down, regardless of your income and asset documentation.

Be very cautious when picking a lender in the high-end today.   You wouldn't trust a financial advisor to handle a large investment portfolio that only had experience with small portfolios. 

If you were picking a financial advisor today, you would likely ask for references and you would interview at least two to see who best understood your needs and who made you feel most confident. 

The same is true in high-end residential lending. 

You want an experienced high-end lender at a bank with a special banking division that understands and can visualize the financial, big-picture complexities of the luxury-home buyer and deals with these types of transactions daily.  

One advantage we have in the luxury market is that experienced lenders in the high-end usually do not follow the same rigid guidelines of their lower-priced counterparts. 

Because these loans will probably not be sold in the secondary market and will be held in the bank's investment portfolio, these lenders tend to review the overall portrait of the loan, and the financial strength of the client, before making a decision on financing.    

Unlike the past, don't just assume you have to go with a stated income loan because you are self-employed.  Lenders in the high-end market are skilled at going over your finances, in detail, with you.  

Often they will consider your business tax returns, cash-flow reports, and other investments, as well as your personal returns, to help them make an informed decision.  You may be surprised what you actually qualify for.

Although the lending markets have changed, there is still money readily available for quality, high-income, high net-worth borrowers buying luxury homes.