FINANCING A MILLION DOLLAR HOME

by Markus Lehmann

Are you at the point in your life that you are can considering buying a million dollar home?

First of all: CONGRATULATIONS!

Because if you are consider buying a million dollar home, that must mean you are doing very well in life and you are ready to really reward yourself for it.

Some people are very hesitant about making the final step towards purchasing their dream home, because of concerns regarding obtaining and carrying a big mortgage.

Here is the good news: In reality there is not much of a difference between a $100,000 or a 1 Million Dollar Mortgage.

Jumbo Mortgages

Mortgages with an amount above the conforming loan amount limit (currently in the 400,000s) are called Jumbo Loans or if above 1 Million Dollar Super Jumbo Loans.

What's the difference when applying for a Jumbo Mortgage? 

Not really that much, besides the higher loan amount and a slightly higher Interest rate (usually +0.25%).

Of course most lenders are a bit more conservative when reviewing a Jumbo or Super Jumbo Loan application.

They usually like to see at least 2 month payment reserves and prefer some down payment (100% financing is still possible) and a decent credit score.

Everything else is the same as for any other mortgage, like questions about income, housing history, other debt obligations etc.

In fact, most Jumbo and Super Jumbo Loan applications are often easier to get approved, since most applicants owned a home before and therefore  have a higher credit score and also proved their ability to handle a mortgage payment.

Also, most loan products, like Stated Income, No Doc, Option ARM's (minimum payment loans), fixed rates and ARM rates are available for all Jumbo loan amounts.

When it comes down to it, purchasing a Million Dollar home is really the same as acquiring a 100,000 Dollar property.

Well, actually there is one major difference: Living in a Million Dollar home is soooooo much more fun......

Concerned about high payments on a Jumbo Mortgage?

For many borrowers a so called Option ARM Mortgage helps them to more flexibly manage their monthly mortgage payments.

Options ARM’s

One of the newer loan products on the market are the so called OPTION ARM’s.

This mortgage is basically an adjustable rate mortgage with one additional great feature: The borrower can choose each month from four different payment options on how much he would like to pay.

The payment options are:  Just a minimum payment (very low payment below interest only payment), an interest only payment, or a payment based on a 15 or 30 year amortization.

This mortgage with payment options is very popular with borrowers who have a fluctuating income. One can opt to pay only the minimum payment in a month with lower income, while making a higher payment in a month with very strong income.

But all borrowers considering an Option ARM should keep in mind, that using the minimum payment option means negative amortization, because the minimum payment on Option ARM’s are less than the occurring interest.

So instead of paying down the balance on the loan or at least keeping the loan balance the same like with interest only payments, the principal loan balance increases over time. The borrower may in fact end up owing more to the bank after a few years, than he did when he took out the loan originally. 

It’s also good to know, that some lenders are not willing to put a second mortgage behind a Option ARM first mortgage.

So if a borrower plans on taking out a second mortgage, like a Home Equity Line of Credit, it can be a little more challenging to find a competitive product.

On the other hand, an Option Arm Mortgage is a very powerful tool in the hand of a financially responsible borrower and that's probably why it is a very popular mortgage product.