From the category archives:

Financing a Luxury Home

Looking to purchase a new luxury home this year in the Twin Cities? Most likely, you will be using what’s called a Jumbo Loan to help finance the purchase.

What you need to know is that the rules have changed, thanks to the Consumer Financial Protection Bureau. Effective January 10, 2014, the rules for the jumbo-mortgage market are changing. According to the Wall Street Journal’s Market Watch, here are five changes to expect in 2014:

  • Fewer types of Jumbo Loans – interest only loans and those with balloon payments will be hard to find, and will most likely result in a higher down payment requirement.
  • Lower Down Payments – the good news is that many banks are dropping the 20% down requirement on large loans, some down to 10-15%. But this might mean private mortgage insurance will come back, an added expense for borrowers.
  • New Rules for “non-qualified” loans – Loans that meet the new “qualified” requirements must have no higher than a 43% debt to income ratio. For banks wishing to offer jumbo loans above this mark, they will most likely require higher down payments, and proof of large cash reserves.
  • Banks will Push for ARMs – rates on 30 year fixed-rate Jumbo Loans will increase over time, thus causing some banks to promote ARMs (adjustable rate mortgages), allowing them to make more money on higher interest rates once a borrower’s rates reset
  • Rate Changes – new rules created by Dodd-Frank will cause investors to pay more for loans sold to them, passing this cost down to borrowers utilizing Jumbo Loans


The video below is a quick snapshot about how the new Mortgage rules will affect the real estate industry this year.


A few months ago I reported that financing for the upper bracket home market in Minneapolis and St. Paul was having some difficulties. Banks were being very cautious for million dollar loan requests, and the new norm for down payment was at least 30%.  The word of the day was “documentation”, and banks required a ton of it. Now it looks like banks might be easing up on luxury home buyers…well, maybe just a little bit.

According to Lisa Wells of Residential Mortgage Group, the luxury real estate market is getting a little easier to finance, but still remains cautious. She says, “Loan amounts for 1 million or less are pretty decent for interest rates and the underwriting process, but buyers still need 2 years of solid income and at least a 700 credit score rating.” It appears that a down payment of 20% is also OK, but if you want a better interest rate, than banks would like to see at least 25% down.

If you require a loan amount of over $ 1 Million, things will be a little bit different. Now two appraisals are required by the bank, with the lower of the two used for the loan.  The borrower must have at least 12 months of payments in the bank in a liquid reserve and ideally more, and of course a high credit score.  Ms. Wells says she has found that final loan approval in the million dollar plus market, even if the buyer meets all the requirements and guidelines, “is still left to the discretion of the Underwriter, and that she should have a very, very strong borrower with 35%-40% down.  The thought out there is the upper bracket market still might have some downward pressure, and therefore, anything with loan amounts of $1.5 Million or more is just hard”.

Home owners looking to sell this year should realize that there is a real obstacle with million dollar home financing, as buyers must be able to come up with the dough. Price is not always the reason for why your luxury home hasn’t sold – it could be the lack of qualified buyers. With the tougher rules in place for loan approval, sellers should require that all buyers be pre-approved. In this way, Twin Cities home owners can have a little bit of comfort that a financial capable borrower is knocking on their door.


The Minneapolis Advantage Loan Program – Available to Everyone, Even Luxury Homes

The Minneapolis city council has recently approved a new loan program for buyers who purchase a single-family dwelling, or duplex, in Minneapolis neighborhoods that have experienced higher than normal levels of mortgage foreclosures. The program offers a $10,000 zero percent interest loan that is forgivable over five years to anyone buying a home in which they will live in these key neighborhoods.

Minneapolis neighborhoods who could benefit from this program include Camden, Weber, Folwell, and McKinley, as they are offering an additional $4000 for homes bought in their areas. This brings the total offered to $14,000, and the city of Minneapolis is looking for other areas that will partner this initiative and offer incentives to home buyers.

The funds can be used for a down payment, or for closing costs. They can also be used by the buyer to offset any repairs/improvements that will be done to the home. Better yet, ANYONE can take advantage of this offer as it is not based on any home price!

So if you are thinking of buying in Minneapolis this year, make sure you ask your Realtor and lender about the Minneapolis Advantage Loan Program!


As some of you know who might read my other blog, we recently moved into our new home we had built. We were lucky to buy one of the last lots, so the builder was giving away some great incentives to close out the subdivision.

This past week, two homes have gone up for sale in the neighborhood, and both are priced differently. The neighborhood is only two years old, so these are two of the first homes to be resold.

  • the first home is on a flat lot and was bought for $280,000 a year ago. They are now asking $300,000 for the home, but have also finished the basement. I viewed the home two weekends ago with a client, and thought that the asking price was very fair to the current market.
  • the second home just went active a couple days ago at a price of $380,000, which is the exact same price they paid for it two years ago, during the height of the market. It is a walkout lot and has a finished basement. However, I knew right away that in this current market, it was way overpriced.

Of course my husband teased me, saying that I wasn’t a very good real estate agent, not getting my name out to the neighborhood already. According to him, we have been here a month and a half and I should have already canvased the area with promotional materials. At these times, I just have to roll my eyes and ignore his “sarcasm”.

Then a funny thing happened on Monday. I received a phone call from an appraiser representing the relocation company taking care of the owners of the second home. The appraiser wanted to speak with me about our house, as it seemed to her to be a very close comparable to the home. I told her about all our upgrades, as we had many due to the huge incentives, that we had a finished walkout basement, and that our lot was far superior to the second home. Ours sits on a cul-de-sac with woods and a natural area behind it, but theirs backs up to other homes and has a smaller lot.

Of course during the conversation I told her I was a real estate agent, and we talked for about half an hour about other homes in the neighborhood that had recently closed with the builder. She then asked me the question that I knew was coming:

“In this market, what do you feel is the market value of this home?”

I told her, that “I hate to throw the agent and the owner under the bus”…but the home is not worth the money they paid for it. Looking at the current solds in the neighborhood, the house is probably worth $350,000, which is $30,000 less than they paid for it in 2006. Surprisingly, the appraiser agreed with me and stated the other comparable homes she was coming up with were not supporting the current list price either.

You can’t pull the wool over the market’s eyes. The truth will always come out, and buyer’s, with so much information at their finger tips, can easily judge for themselves what current market value is. It is sad that so many homeowners are faced with a similar situation, but they will be thrown under the bus if they over-price their homes. What’s a real estate agent to do in a market like this, but present the real picture to sellers and buyers. Unfortunately, not everyone wants to listen.


Tax Credit Hearings Scheduled for Historical Home Preservation
(courtesy of the Preservation Alliance)

The Preservation Alliance of Minnesota and a coalition of supporting organizations are back at the State Capitol in 2007 to support the Historic Preservation Tax Credit proposal. We need your help to make it happen!

The Historic Preservation Tax Credit proposal would provide a 25% tax credit for qualified historic rehabilitation projects, providing significant economic development benefits statewide, in small towns and large cities alike. More than half of all states—29 in total—already have similar programs, and we need this incentive to stay competitive. Most of Minnesota’s neighbors, including North Dakota, Iowa, Missouri, Wisconsin, Indiana, and Michigan, have a state historic rehabilitation tax credit.

Specifically, the tax credit will:

  • Allow an income tax credit of 25% of the amount spent to rehabilitate certified residential and commercial historic structures (locally designated as historic or on the National Register of Historic Places).
  • Encourage private investment in historic properties, generate additional jobs and stimulate economic development within existing communities.
  • Be used as an effective tool for community revitalization in urban and rural areas.
  • Provide incentives to create affordable housing and market-rate housing that stabilizes neighborhoods in areas that are difficult to redevelop.
  • Accelerate private investments into “Main Street” businesses and building rehabilitations, bring vacant properties back onto local tax rolls, and bolster heritage tourism efforts.
  • Pair with the 20% federal rehabilitation tax credit to make smaller or more challenging rehabilitation projects more financially feasible.

The Historic Preservation Tax Credit has been introduced in the both the Senate and the House as Senate File (SF) 385 and House File (HF) 1240. Please click on the following link to access the Senate bill language for SF385 and House bill language for HF1240 Please click here for a A two-page fact sheet about the bill.


Despite the recent interest rate increases, experts say you should finance as much as possible. (by Jessica Goldbogen Harlan, Unique Homes)

Financing a multi-million home can be a scary proposition, but there are plenty of options and packages available for high-end home buyers that can make buying a luxury property fit nicely into a portfolio of sound and secure investments. Although the Fed raised interest rates 17 times in a two-year period from June 2004 to June 2006, now rates have stabilized and experts believe that the rates will stay about the same through mid-year, while some even predict that we might see an interest-rate drop later this year.

Many luxury home buyers are recognizing the value in financing more of their properties than ever before, as opposed to paying big chunks of cash as a down payment for immediate equity. And luckily, the current real estate environment supports this type of a transaction. “We’ve noticed that buyers have a little more leverage on their side of the transaction than they would have had a year ago,” says Brent Rupnow, relationship manager for Private Mortgage Banking Group, a division of Metrocities Mortgage. “In the past year to three years, if they wanted to get into a property offer, they may have had to come in with an all-cash offer and figured out their financing later, because sellers may have been getting 10 to 12 offers, and if you’re selling a $5 million home, you’re more likely to gravitate toward that all-cash offer.”

Today, however, Rupnow says that homes are sitting on the market a little longer and there aren’t as many offers on the table, giving buyers more negotiating room than in the past.

In terms of the types of financing available to luxury home buyers, both Rupnow and Ridings agree that each case is entirely different, and buyers should make sure they work with a lender who consults with them about their financial situation to ensure they obtain a mortgage that will benefit them the most. “We see a lot of clients coming to us looking to leverage higher amounts of financing and put less or even no money down,” says Rupnow. “For purchase prices up to $1.7 million or $1.8 million, we can [still] do no money down.” A number of new mortgage products can make financing even more attractive.

For instance, Ridings points out that the banking community is coming out with longer amortization terms. While in the past, most mortgages were no longer than 30 years, now banks are offering 40- and 50-year amortization terms. Other home buyers may be interested in some of the new interest-only or payment-option adjustable rate mortgages. A Wall Street executive whose main source of income is a hefty year-end bonus, for instance, can pay low amounts for most of the year, but use part of his bonus to pay down his principal balance, thus recalculating the interest-only payments for the next year. These types of mortgages give a homeowner the opportunity to plan for different amounts of money to be allocated to their mortgage at different times of year.

Often the monthly bill coupon itself will indicate several options for that month’s payment, whether it’s interest-only, a minimum payment that temporarily defers interest, or a larger amount that would pay against the loan’s principal. “You can change it literally every month, which gives a [homeowner] a much greater ability to control their own personal cash flow,” says Rupnow. Rupnow’s company also sees a resurgence in mortgage interest rate buy downs, a practice that was popular in the early 1990s. “Under this program, the seller ‘buys down’ the interest rate for the buyer for a set period of time,” explains Tim Kruger, executive vice president, Private Mortgage Banking Group. “This helps to avoid deep price cuts, while providing the buyer with a lower mortgage payment.” This can be temporary-in which the pre-payment of the interest is for a specific period of time, such as one or two years-or permanent.

At the other end of the spectrum, other types of home buyers are gravitating to more traditional, longer-term fixed-rate mortgage options. Because a short-term interest rate is actually a few points higher than the rate for long-term loans, locking into that long-term rate makes sense for clients who do not want to worry about changing rates and aren’t cash-flow sensitive. Whatever financing option you choose, it’s almost certain to benefit your short- and long-term financial health.