How to Get a Million Dollar Mortgage

How to Get a Million Dollar MortgageWhen looking to buy a million-dollar home, you need to consider whether you’ll be able to afford a million-dollar mortgage (also known as a jumbo mortgage). A property worth $1 million will have lots of bedrooms and bathrooms and maybe even a swimming pool or tennis court. You need to know that you can pay for all the expensive utility bills, any repairs or renovations, and maintenance of the property to keep it standing for years to come.

You should also think about how much you’ll be expected to pay each month on your mortgage repayments, including the fact that interest rates could rise, therefore increasing the payments and term of your loan. It’s important that you can avoid defaulting on your loan or going into foreclosure.

When you know you’re ready for such a huge undertaking, here’s what you need to do to get a million-dollar mortgage:

1. Find the right property and location

Million dollar homes are no longer few and far between. In fact, there are now 170 suburbs in Sydney with a median house price of $1 million, according to Australian Property Monitors (APM). These suburbs are in the upper and lower north shores, the northern beaches, the CBD, the east, and the north and inner west. Whatever your dream house looks like or wherever it is located, make sure you get both a building and pest inspection done. You don’t want your multi-million dollar mansion to turn out to be a structural disaster that costs you big a few years down the track. Also, for a property at such a high price consider your purchase a long term investment – will you still want to live there in five years time?

2. Calculate how much you need to borrow

Once you’ve found the property you want to buy, calculate the amount you need to borrow. A house that costs $1.5 million may require a 20% down payment, which means you need to put down $300,000 of your own money and then apply for a $1.2 million mortgage.

3. Search for the right loan

Find a loan that best suits your circumstances. If it has a redraw facility, you can save on interest by making additional payments. You can also access a built-up buffer when you need it with an offset account, which is a transaction account linked to your home loan, where the balance offsets your mortgage balance.

If the bank won’t approve your loan application, you may need to consider getting a private mortgage from a private lender.

4. Find the right interest rate

Determine if you want a fixed, variable or split-rate loan. Large mortgages with fixed interest rates are rare, so look at the pros and cons of variable-rate loans or split-rates loans (which is a combination of fixed and variable interest rates). Also consider the fact that fixed-rate loans usually have fewer features than variable-rate loans and you may have to pay fees if you exit before the loan term ends. Furthermore, interest rates could rise up to 2%, so make sure that you can still meet your mortgage payments if and when this happens.

How to Get a Million Dollar Mortgage5. Look for a lender who offers million-dollar mortgages

Compare different lenders, asking them if the loan size will have a higher interest rate or additional fees, and then choose one that best suits your needs. If you’ve been knocked back by your bank, have bad credit, can’t jump the red tape or are looking for a no-fuss funding solution, consider getting a million-dollar mortgage from a private mortgage lender. At Easy Settle Finance, we offer private mortgages of up to $4 million (or potentially more, depending on your situation).

6. Review your budget to ensure that you can afford a $1 million mortgage

You should have enough money to meet your monthly payments. You can use a mortgage calculator to determine how much you need to pay each month. For example, for a $1.6 million house, if you borrow 65% of this ($1.04 million) from Easy Settle Finance, at an approximate repayment rate of 12% per annum, you’d need to be repaying $10,400 a month. Don’t forget to add monthly taxes and insurance to the amount. Also keep in mind that you need to go by the rule of making loan repayments that are no more than 28% of your income before taxes, so you should be earning over $37,000 each month.

7. Seek legal advice

Engage the services of a solicitor/conveyancer and a real estate agent who specialise in jumbo mortgages and work with them throughout the home buying process to ensure that you obtain the mortgage and home you want.

8. Provide your tax returns, income statements and credit report

You must show proof of income from the last 2-5 years, such as your tax returns and income statements. The lender will use these along with your credit report to determine whether you qualify for the mortgage (you’ll need to have a credit score of at least 700 to qualify). You should also have a debt-to-income ratio of 40% or less. For example, if you have to pay $9,000 in repayments, taxes and insurance per month and you have no other debt, you need to be able to show that you earn an income of $22,500 each month.

Financial credibility, a steady income and a low debt-to-income ratio that will allow you to pay the principal loan amount, as well as interest, taxes and insurance will make you a more attractive loan candidate in the eyes of a lender.

9. Show your assets and have a contingency fund/significant cash reserves

A lender will also need to look at your liquid and non-liquid assets, including investments in the stock or bond markets and whether you own another home, a car, and so on. You’ll also need to have a contingency fund or at least 6 months of cash reserves to meet your monthly payments in the event that you lose your job along with your income.

10. Provide your bank statements

Your lender will want to see that you can pay for the down payment up front, which may be 20% of the home’s purchase price. For a $1 million home, your bank statements will need to show that you have $200,000 in readily available funds.

11. Make a larger down payment

The down payment for a million-dollar home will still leave you with a significant debt, so it’s advised that you make a larger down payment. This will be better for you and your lender in the long term.

12. Complete the mortgage application form

Make sure to indicate the loan amount and terms that you want. For example, if you want a loan that’s no more than $1 million for the next 30 years, your lender will set the rate.How to Get a Million Dollar Mortgage

13. Sign a commitment letter once your loan application is approved

The loan terms and conditions will be outlined in the letter and if you agree, sign it, return it to your lender and then set a settlement date.

14. Attend the settlement and sign the mortgage documents

The number and type of documents you need to sign will depend on your lender. Once you’ve signed the documents, you’ll be given three days to change your mind and cancel the transaction. If you don’t change your mind, then you’ll finally have your million dollar mortgage.

Once you’ve considered everything you need, now and in the future, and feel confident that you can take on a million-dollar mortgage, contact a reputable mortgage lender. If you have your finances in order and follow the tips above, you just might get your million-dollar dream home.