Jumbo Loans Still Hard to Get – Seller Financing Increasingly Popular for Closing Luxury High End Properties
Recently, LA Times writer Peter Hong published an article about the new interest mortgage interest rates:
Mortgage rates fall, but many borrowers will have trouble qualifying – Low seasonal demand and high borrowing standards make a rush of new loans unlikely.
“. . . Jumbo mortgages, those over $729,000, carry interest rates just under 8% and remain very difficult to obtain, Lazerson said. Because Fannie and Freddie can’t buy jumbo loans, the rates on them are unlikely to be affected by the Fed’s plan.”
The jumbo loans needed to purchase luxury residential properties, as well as the mid-sized commercial properties, are going to continue to be very difficult to get. And it’s showing. The high end properties just aren’t moving, and they won’t unless we can bridge the financing gap.
I know a lot of agents that will say that the higher end clients don’t need help with financing . . . they have great credit and income, or maybe they’re all-cash buyers. I don’t doubt that that’s true for some, but it’s definitely not the case for all.
Seller financing is going to be an increasingly important tool for closing the more expensive properties. When there is existing financing that needs to be left in place, we are having great success using the Equity Holding Trust Transfer System to protect both buyers and sellers.
Incidentally, this strategy can also create the possibility for complete deferral of capital gains on luxury residences. The home owner’s exemption is $500,000 at most, so anything over that is subject to federal capital gains (that may very well increase to 20%).
If a property seller agrees to leave existing financing in place for a buyer and puts the property in a land trust, their primary residence can become classified as an investment after 12-18 months, and they can elect to do a 1031 exchange into another property once the trust is terminated (has to be completed within 3 years).
If you have a property over $700,000 that is not selling, you should really give me a call before you consider taking it off the market or doing a drastic price reduction. Offering terms will help support your price point.
Agents who understand alternative exit strategies will find themselves closing more transactions than their counterparts.