Luxury Property Financing
Congratulations, you are going to buy a luxury property. But what about financing? Fortunately, lenders are again active in the high-end market and several loan programs are being made available. The one that works best for you will be determined by your personal financial situation, credit history and desired use of the property. There is bound to be a perfect mortgage available for you. Here are a few mortgage “facts” to take into consideration when looking for your luxury property.
Townhouse Mortgage Financing
Generally, residential loans tend to be more favorable for borrowers than commercial loans. This is important to consider when looking to purchase a townhouse in New York City. Fortunately, even multi-family units can qualify for residential financing. A townhouse can qualify for residential financing so long as the number of residential units is less than or equal to 4. More than that and the property will be considered a commercial property and will be subject to commercial financing rates and terms.
How much can you borrow? The amount a bank will lend varies depending upon the purchase price of the property and the financial circumstances of the borrower. Generally, for a purchase price up to $5mm, a lender will provide 60-70% financing; for purchases over $5mm, a lender will provide 50-55% financing – that’s the rule of thumb. But different banks have different criteria, and this information is not always readily available. Your mortgage broker, however, can work with you to identify the right lender to match your borrowing requirements.
What about mortgage closing costs? The closing costs associated with a townhouse purchase will be approximately 2.5% of the purchase price. This includes the mortgage recording tax (1.925%) among other less significant costs. Another cost that needs to be taken into consideration, but is not a cost related to mortgage financing, is the Mansion Tax. Mansion Tax applies to any purchase over $1mm and it is 1% of the purchase price.
Condominium and Cooperative Apartment financing
Condominium Apartment Unit
Like a townhouse, a condominium apartment is “real” property. The main difference between a condominium and a town house is that in the case of a condominium there is no individual ownership of a plot of land. The land in a condominium project is owned in common by all the homeowners. Financing for this type of property is similar to financing a townhouse except the building must be approved by the lender. The down payment requirements and closing costs for a condominium are similar to the down payment and closing costs described above for a townhouse.
Cooperative Apartment Unit
In the case of a cooperative apartment unit (co-op) the “owner” is a shareholder in the corporation and is issued a proprietary lease that gives the shareholder the right to use that particular unit. Like a condominium, financing for a co-op requires building approval by the lender. Likewise the down payment requirement is similar to a condominium or townhouse, but is always subject to the requirements of the coop board.
One of the advantages of a co-op is the savings in closing costs. Unlike a condominium or townhouse, the closing costs are significantly lower for a co-op and will be about $5k-$6k subject to the number of property appraisal reports a specific lender may require.
For additional information pertaining to the financing of luxury properties and for a pre-qualification, which is best done before starting your property search, please contact one of the following brokers.
Sales Manager Private Mortgage Bank Wells Fargo
NMLSR ID 429833
150 East 42nd Street, 32nd Floor
New York, NY 10017
Lisa A. Parnagian
Mortgage Loan Officer
NMLS ID: 42216
Bank of America Home Loans
50 Rockefeller Plaza, 11th Floor
New York, NY10022