Want to buy a luxury home but the down payment is daunting? Here are 10 things that will help.

It used to be that buying a home meant coming up with at least 20% of the purchase price, a sizable amount. But purchasing a luxury or high-end home was even more cash cumbersome, with some lenders requiring a 30% down payment. If you were purchasing your dream home for $1,000,000, $750,000, or even $500,000, the down payment can easily add up to an intimidating sum.

Likewise, even an average home purchase can require a sizable down payment in high-cost areas (hello, California!), often preventing first time home buyers from getting their first keys. Studies show that renters in the nation’s 20 largest metro areas say that coming up with a down payment is the #1 obstacle to buying a home. And in areas like San Jose and Los Angeles with super high-cost real estate, a 20% down payment adds up to 180% of median income for one year! 

Thankfully, there are better options for home buyers these days when it comes to down payments. In fact, last year, the average down payment on a single-family home purchase was only 14.8%. And according to Freddie Mac, about 40% of all homebuyers put down less than 10% on the overall value of their homes. 

Of course, you’ll want to contact a great mortgage broker to discover all of your loan options, but here are 10 great ways luxury home buyers can make that down payment more affordable:

1. A jumbo loan may offer less than 20% down.

When purchasing a luxury home, you’ll likely want to explore a jumbo mortgage loan. A jumbo loan is just a non-conventional loan for a purchase price/loan amount higher than Fannie Mae and Freddie Mac’s loan limits. Currently, those limits sit at $636,150 in high-price areas (much of California), or $424,100 for the other 93% of the U.S. While a jumbo loan will give you the funds necessary to close on your dream home, it does come with additional scrutiny and requirements from the lender. 

Some jumbo loans traditionally even required 30% down payment, but the good news is that these days, certain jumbo loans will allow you to put only 5 or 10% of the purchase price down, making a luxury home purchase imminently more realistic.

2. Ask the seller to finance a piece of the mortgage.

While this practice has become far less prevalent, having the seller offer some form of secondary-financing is a great option for luxury home buyers who don’t want to (or can’t) part with a sizable down payment. Quite simply, the seller will back up your mortgage financing with a small second personal loan, maybe for 5, 10 or even 20% of the purchase price, closing the gap on what you need to put down. 

Why would a seller do this? Luxury homes are often harder to sell, with fewer buyers to choose from and bigger price drops in a soft market. So seller-financing is a great win-win for the seller, too, if it means the difference between finalizing a sale at the price you want.

3. Borrow from retirement funds.

One legitimate option for luxury home buyers to come up with the necessary down payment is to borrow or withdraw from retirement funds. Of course, you'll want to consult your financial planner and tax adviser to work out a strategy that makes sense. But some 401(k) plans allowed you to take out 50% of their vested balance up to $50,000 as a tax-free loan, although the loan has to be repaid after a specific period (usually five years). 

You can also withdraw funds from a traditional IRA or up to $10,000 without getting hit the 10% penalty, although you might have to pay taxes on the amount.

Again, check with your financial planner well ahead of time and also ask your mortgage broker about doing this within loan guidelines, but many luxury home buyers find a little down payment help from their retirement accounts.

4. Borrow from family.

Today’s home buyers are having such a challenging time coming up with the necessary down payment that about 25% of them are turning to family and friends for gifted funds to help them buy. There’s no reason why you can’t formulate a similar arrangement to come up with the funds for a luxury home downpayment.

5. Consider an FHA loan.

FHA’s loan limits are based on a percentage of the national conforming loan limit. So in high-cost areas (like most of California!), the FHA loans may go all the way up to $636,150. AN FHA loan may also be attractive because it usually allows a much lower down payment, sometimes as low as 3.5% for qualified borrowers. While you may have to Private Mortgage Insurance and there are other restrictions with FHA loans, it's worth looking into for a higher-end house purchase.

6. Work with a mortgage broker who specializes in luxury real estate. 

You’ll have a lot of options when searching the right mortgage broker or lender to handle your purchase loan, but you may be well served interviewing a lender that commonly works with luxury real estate. Their experience, product and industry knowledge, and relationships with banks and lenders could prove helpful! 

7. Keep a great credit score.

One of the best ways to ensure that you get the best rates, terms, and loan options available – including a minimal down payment – is to keep a great credit score. Typically, lenders consider home buyers with super-prime credit scores (760 and above, but an 800+ score doesn't hurt!) as low-risk borrowers, so they'll offer the best possible pricing and conditions. Consult your mortgage broker, but you'll also want to check your credit well before your home purchase and make sure your score is tip-top.

8. Check with your bank.

You’ll have plenty of options when it comes to applying for a mortgage loan, but it may be worth your time to check with the bank that has your accounts, too. If you have significant funds, investments, or retirement accounts with one bank branch, they may have some leeway in offering great low down-payment options for your luxury home purchase.

9. Take out a second loan.

In years past, it was common for home buyers to take out an 80% first loan and then back that up with a 20% second loan, eliminating the need for any down payment at all – and also avoiding Private Mortgage Insurance. While those subordinate loans aren't as popular these days, you may still be able to find second position financing to ease the burden of coming up with a big down payment out of pocket. 

10. Find funds from other sources.

When necessity requires, homebuyers often become resourceful and find funds from other sources to soften the down payment blow. That may include tapping into an equity line or cash-out refinance from another property, personal loan, or business loan. 

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Contact us if you have more questions about down payments or buying your dream home! 

6 Reasons why buying your dream home is less expensive than you think

How much does it cost to buy your dream house? A lot less than you may think.

Whether we’re dreaming of purchasing our first home or selling and moving up to our dream home, studies show that most people would love to get the keys to a new home. However, many people are scared away from even looking into buying because they fear that it will be too expensive.

I’m not minimizing that it can be intimidating to sign on the dotted line when a lot of zeros are involved. However, I think that you’ll find that buying your dream house is a lot less costly than you anticipate – especially when we factor in the time value of money and the opportunity cost of not buying your dream home now.

Here are six good reasons to back up that assertion:

1. People grossly overestimate the down payment needed to buy.
Of course, for most people, the biggest impediment to buying their dream home is coming up with the down payment needed. However, there’s a clear discrepancy between what most people think they need to put down for a home purchase, and what is actually required.

Perhaps that perception stems from the fact that in decades past, buying a home meant coming up with at least 20% of the purchase price. But these days, most buyers don't stick to those rules, committing only the minimum that their particular loan requires in most cases. In fact, the average down payment on a single-family home purchase is now only 14.8% - and that number is skewed higher by all-cash buyers.

Speaking of loans, many of our home buyer clients are benefiting from mortgage loans that allow them to put less than 20% down, often 10% or even 5%. Likewise, a significant portion of home buyers – particularly first-time buyers or those with marginal credit – may be able to put even less down with FHA loans.

Of course, I’m not a lender, so consult your mortgage broker or ask us for a referral if you’d like more information.

2. Down payment assistance may help lower the cost of buying.

Gone are the pre-real estate crash days when 100% financing was so easily available, and down payment assistance thrived and often made up the difference. But most people don’t realize that there are still great programs, grants, and funds available to assist qualified applicants with their down payment. In fact, there are about 78 million single-family homes and condominiums in the U.S., and 87% of them (68 million homes) could potentially qualify for some sort of down payment assistance program, grant, or other down payment help.

Reportedly, there are more than 2,400 grants, funds, and assistance programs across the country, and 85% of them have funds available for homebuyers at any given time.

Sure, they usually aim to help first-time buyers, lower-income buyers, or folks purchasing modest homes – not exactly your dream mansion. But about 14% of down payment assistance programs are earmarked for individuals that play important roles in our communities, like educators, public servants, healthcare workers, and military veterans.

Down payment assistance programs aren’t just for first-time homebuyers, as 37% of these programs do not require a borrower to be a first-time buyer.

Why not at least ask your mortgage broker about down payment assistance programs since less than 10% of home buyers even apply for a down payment assistance program?

3. Buying is cheaper than the alternative of renting.
Rental demand is hotter than ever in the greater Sacramento area, with little new construction going up for affordable rental units. With a shortage of rental units as well as record-low housing inventory for sale, we’ve seen extreme upward pressure on rental prices. Therefore, waiting to buy your dream house may cost you more if you DON’T purchase now but wait. That logic is sound whether you want to keep renting a house or if you already own a home and are thinking of waiting to sell down the road.

In fact, when we track the monthly allocation of income toward mortgage vs. rent across the country, renting is now twice as expensive as owning a home. (That also means that it’s about half as expensive to be a homeowner than it is to rent.)

And if you think that renting is expensive now in California, economists expect it to keep skyrocketing – particularly in Sacramento, where at least half of all renters pay more than 30% of their income toward rent.

4. Stability saves you money
Some pennywise financial bloggers will tell you to spend within your means when it comes to buying a new house, but what they forge to factor in is the future cost of stability. Consider that every time you move, you have to put your house on the market and sell (paying about 6% to us pesky Realtors), as thousands in other affiliated closing costs; then pay for a moving truck, new furniture, fixing up the new place, etc. By buying the house you truly love and want to be in for the long haul (aka your dream home), you'll avoid paying those selling and moving costs two or three times over the next decades.

5. You’ll probably pay a lot less for taxes.
Owning a home is still one of the best tax breaks you´ll ever find. The government doesn't want to be in the business of housing 300 million+ Americans, so it long ago decided to offer huge tax advantages to promote home ownership and investment. In fact, you can deduct the interest on up to $1.1 million in mortgage indebtedness on your primary home; write-off a lot of repairs and upgrades you make; and sell your primary home for tax free profits up to $250,000 for singles (or $500,000 for married couples) if you’ve lived in the home two of a five years.

Consult your CPA or tax professional for specifics, but he or she will most certainly reinforce that buying your dream home now is a great financial move!

6. Buying now can help fund your savings, net worth, and retirement.
It may feel like purchasing your dream house now is expensive, but two years, five years, and twenty years down the road, you’ll be ecstatic that you made the move. Part of the reason for that future optimism is that statistically, owning a home is the best path to wealth in America.

First off, a study by the Federal Reserve found that median home equity in the U.S. for all homeowners is about $80,000. That means they have a “savings plan” of $80,000 on average (although home values can go up and down and are not liquid - or easy to access). Just as important, the average homeowner keeps $7,300 in liquid cash savings, compared to extremely low savings levels for renters that keep them living month-to-month.

Likewise, statistics show that the average homeowner’s net worth is 34 times that of a renter, and 77% of homeowners say owning real estate helped them achieve their long-term financial goals.

It’s no wonder that 94% of millionaires attribute real estate ownership as a significant part of how they obtained and held their wealth.

10 All-time great real estate quotes (in images).

What do some of America’s most famous billionaires, business people, and investors think about real estate? We researched high and low to find their best advice about buying and investing in real estate, right from their own mouths.

There is no greater means to secure a bright financial future than real estate ownership. In fact, it's been the American Dream to own a home throughout our nation's existence. But don't just take our word for it. From Robert Kiyosaki to John D. Rockefeller; Barbara Corcoran to Warren Buffet, we’ve captured the thoughts and words of these iconic Americans when it comes to real estate.

We’ll be sure to bring you ten more quotes like this soon, and feel free to share these images or use them for your own blog, website, or social media pages!

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“The major fortunes in America have been made in land.”

-John D. Rockefeller

“Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth.”

-Robert Kiyosaki

“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”

-Andrew Carnegie

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

-Warren Buffet

“Owning a home is a keystone of wealth… both financial affluence and emotional security”.

-Suze Orman

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

-Franklin D. Roosevelt

“This is a real-estate-driven economy from top to bottom.”

-Christopher Thornberg

“If you don’t own a home, buy one. If you own a home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.”

-John Paulson

“Real estate is an imperishable asset, ever increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security.”

-Russell Sage

“There have been few things in my life which have had a more genial effect on my mind than the possession of a piece of land.”

-Harriet Martineau

Your Sacramento real estate market report

It's hard to believe that 2017 is nearing an end, but here I am with Sacramento home sale data for the third quarter on my desk. Always committed to bringing you the most up to date information to drive your real estate decisions, I wanted to share this August real estate market report.

(This data covers single-family homes as well as condominiums in Sacramento County as well as West Sacramento. Please contact me for most recent data on Placer County or other areas.)

Highlights of August home sale report:

Sacramento’s median home sale price dropped for the first time this year (although just marginally).

• Sales volume jumped in August, but it’s still down from one year ago.
• Active inventory increased significantly from July to August, the 7th straight month of increase.
• Equity sales also reached a high water mark. 

In this blog, we’ll track eight key indicators of our real estate market:

1. Median home sale prices,
2. Sales volume,
3. Listing inventory,
4. Months of inventory,
5. Days on Market (DOM),
6. Price per Square Foot,
7. Types of financing for sales, and
8. Distressed sales

Median home sale prices

As of August 31, 2017, the median price for residential property is currently $349,000 in Sacramento County.

But the mean (average) home sale price in Sacramento County is much higher, now sitting at $379,790.

That represents a -1.6% increase from just last month, but a 7.7% increase compared to this same time last year.

Sales volume

In August 2017, there were 1,734 closed residential property sales in Sacramento Country (and West Sacramento).

That's up 6.1% from the previous month when 1,634 sales closed.

It’s also a significant increase in sales volume from April 2017, when there were only 1,512 sales.

But it's still down -3.6% from sales volume this time last year when 1,799 escrows closed in August.

How do those numbers hold up historically? The highest number of sales every recorded in one month was 1,816 in June of 2012.

In August, there were $658,554,997 in closed sales. That’s up 4.9% from July’s $627,917,877, and a total dollar volume increase of 3.3% from this month last year, when $637,779,736 worth of residential single family homes sold.

Listing inventory 

Sacramento County now has an active inventory of 2,593  homes and residential properties for sale.

That's a significant increase of 8.3% over just last month when there were 2,395 active listings.

In our market stricken with lack of inventory woes, an 8.3% increase in listings is great news.

While that may sound like a lot of homes and properties for sale, that’s still down a double-digit -11.3% from the number of active listings (2,923) this time last year.

Months of inventory

Currently, our supply of available homes for sale, represented as Months of Inventory, sits at only 1.5 months. That’s the same number from the pervious month but up significantly from April (1.2 months) and May (1.1 months) of this year.

This time last year, we had 1.6 months of active inventory available, so we can be cautiously optimistic that we’re only off that pace about 6.3% and trending in the right direction.

Days on Market

In August 2017, the average Days-on-Market for sold single-family homes was 22 days. That means it took an average of only 22 days before listings first went Active and then went Pending when an offer was accepted.

But last month, the average home sold after only 18 days on the market.

The median Days On Market is even strikingly lower; currently at 11 DOM and up from 9 DOM last month!

In fact, 84% of all homes (one house on lot or condos) sold in 0-30 days or less, and only 1% took four to six months. None went longer!

All of this means that were at the lowest average Days-on-Market ever recorded in Sacramento!

Price per Square Foot

The average price per square foot for sold properties in Sacramento County was $229.50 as of August 2017. That’s an increase of just under 1% from last month and more than 10% from May 2016, when the price per square foot was $205.

How far have our priced jumped? Only four years ago – in April 2013, the average price per square foot in Sacramento County was only $145!

Types of financing for sales

All-cash sales made up 12.4% of all home sales in August, down from 13.8% in July.

For those home purchases that required a mortgage:
Conventional financing was utilized for 55.5% of all purchases,
FHA (Federal Housing Authority) loans made up 22.3% of all purchases (up 2.1% from just one month earlier!),
VA (Veterans Affairs) loans accounted for 5.4% of all home purchases.
And other types of financing were used in 4.5% of home sales.

Distressed sales

In fact, equity sales (homes that sold with enough equity or break even or profit) accounted for 97.5% of the sales in August, up from 92.5% equity sales this time last year.

REO/bank-owned homes sales fell below 1% (0.9%), with only 16 such closed escrows – which is 70% less than August of 2016! Likewise, Short Sales made up only 1.6% of all sales and are down nearly 435 from last year.

What’s next for the Sacramento region?

Look for our Sacramento economic report and housing market for 2018 and beyond coming soon!