Are you considering buying an ultra-luxury property as your first home? If you live in the Houston, Texas area, you should consider looking at Hedwig Village. An upscale neighborhood just west of downtown, Hedwig Village is one of six independent cities in Memorial Villages. With approximately 2,600 residents, it’s a small town that features new construction as well as older ranch-style homes. Though there are apartments for sale in the Village that start as low as $185,000, most of those who buy in the area are looking at ultra-luxury properties as most homes sell for $1 million or more.
Financing an ultra-luxury property is a little different than finding a loan for a more moderately-priced home even if you are a first-time buyer. Here is more information on financing options for ultra-luxury first-time buyers to help you get started.
FHA loans
Many first-time buyers look at FHA loans–or those backed by the Federal Housing Administration–to buy their first properties because of the low mortgage interest rates and less stringent requirements on credit score. However, there are limits to how much you can borrow with this type of loan that are adjusted annually. If you are looking at a single-family home in Texas, the limit is $472,030. As ultra-luxury homes in the area sell for at least twice this amount, you will likely have to look at other options.
Conventional loan
A conforming or conventional loan is the next option for financing your Hedwig Village home. Keep in mind there are also limits on the size of these loans and that you will need a higher credit score to qualify. In Houston, the conforming loan limit for a 1-unit dwelling (single family home) is $726,000. That means that if you qualify for the highest amount and want to purchase a property that costs $1 million, you will need to come up with a down payment of $274,000 to make up the difference. As first-time buyers will not have proceeds from the sale of a previous home, they will need to look at other ways to get the down payment if they don’t have it in savings.
Piggyback loan
One option to come up with the difference between the price of your home and the limit of a conforming loan is a combination mortgage or piggyback loan. This is a multi-part loan that covers separate parts of a home. One of the most common types of combination mortgage is an 80/10/10 loan where the primary loan is 80% of the purchase while a second mortgage or HELOC covers another 10% and a down payment takes care of the remaining 10%.
Jumbo loan
A jumbo loan is one that exceeds the limits put on conventional loans. However, many first-time buyers shy away from them as they are more difficult to qualify for as they have higher limits for credit scores and income requirements. Jumbo loans are also known as non-conforming conventional loans or mortgages. Lenders consider them more risky than traditional mortgages as they are not as protected if the borrower defaults on them.
To qualify for a jumbo loan, you will need a minimum credit score of 700, a low debt-to-income ratio, and extensive documentation such as bank statements, proof of investment accounts, and full tax returns. Many lenders will also look at your cash reserves when making a lending decision as well as require a second home appraisal of the property you plan to buy.
To qualify for a jumbo loan, you will need a minimum credit score of 700, a low debt-to-income ratio, and extensive documentation such as bank statements, proof of investment accounts, and full tax returns. Many lenders will also look at your cash reserves when making a lending decision as well as require a second home appraisal of the property you plan to buy.
Pay cash
Many luxury home buyers pay cash for their properties to avoid financing issues as well as save on mortgage interest. Unfortunately, many first-time buyers don’t have the cash reserves built up as they are often new to their careers and do not have the proceeds from prior home sales. Of course, this is a generalization and there are certainly exceptions. If you do have the cash on hand, you may want to go this route to get the following benefits:
- No need to get approval for a loan.
- No mortgage payments, interest, or other fees associated with a mortgage.
- Lower closing costs.
- More streamlined closing process.
- You don’t have to worry about defaulting on a loan.
- You will have instant equity.
Tips for first-time buyers of ultra-luxury homes
Now that you know the different financing options, learn more about other tips to make your home purchase a success.
- Work with an experienced luxury real estate agent. Luxury agents have the knowledge, connections, and experience needed to find you the perfect home and connect you with other professionals such as mortgage brokers, home inspectors, and insurance agents.
- Know what you want. Ultra-luxury means different things to different buyers, so it’s important to know what it means to you. Are you just looking for a median-priced home in an ultra-luxury neighborhood like Hedwig Village? Or are you on the lookout for a home with ultra-luxury amenities like a tennis court, grand guest suite, elevator, or pool? Knowing your list of must-haves will help your agent narrow down options and be on the lookout for you.
- Be ready to make a quick offer. Though Houston is currently a buyer’s market, the exclusivity of Hedwig Village means that your dream home could sell quickly. That’s why it’s best to have all your financing in order and be ready to make an offer on the spot if you find a home you fall in love with.
Ready to buy your first home?
The excitement (and possible stress) of buying a first home is compounded when that purchase is in the ultra-luxury market. To ensure the process goes smoothly, know how you will finance your home and work with an experienced local agent like Morad Fiki. Morad will explain financing options for ultra-luxury first-time buyers and help you find the home in Hedwig Village that best suits your needs. Learn more from Morad's Buyer's Guide here and search homes for sale in Hedwig Village here.
