So what do Rock Stars, Professional Athletes and business moguls have in common and why are they on my mortgage blog?
Well, some of them have me in common, and those who do, live in houses with loans that are termed Mega Jumbo.
A super jumbo loan is anything over $650,000. A Mega Jumbo is over a million dollars . . . and up to 10 or 12 million dollars.
And, while one would think if you lived in a mega-million dollar house you wouldn't be concerned with financing products, or monthly payments, the reality is that some of you are.
The new philosophy on owning a home is to regard it as an asset, or a vehicle to accrue assets, rather than merely creating a liability on your balance sheet.
To accomplish this, you get as much house as you can for as small a monthly payment as you can, and invest the rest in something that is making money faster than your mortgage is deferring interest.
The most popular super jumbo mortgage program is the "interest only loan", which allows you to pay interest only for a defined period of time which can mean substantially lower payments for larger loan amounts.
Are interest rates higher? Mostly yes. Super Jumbo loans tend to carry a higher rate than conforming loans but rate also depends on your overall risk profile. Loans are priced based on risk, and layers of risk mean high interest rates. Mega Jumbos are also priced specific to the borrower, the property and the risk. These loans aren't priced on a rate sheet, and as such are more difficult to quote to borrowers.
General rules are
- full doc loans are less risky that stated loans;
- Verified assets are less risky that stated assets;
- Higher credit scores are less risky than lower credit scores;
- Owner occupied properties are less risky than second homes or investor loans.
So, when you layer a stated income loan, with stated assets, on an investor property, the layers of risk have multiplied, and the interest rate is higher. Add that to the risk of a million dollar property (or more). Before a lender writes the check, they asses the risk they are taking, and your interest rate is the result.
Stated Pay Option Arm to $6 million? Perhaps, it depends on the layers of risk in your property. (Note) I have Stated Pay Option arms to 100% LTV only on properties that cost $1,000,000 or less.
I also have asset based loans to 100% ltv, up to 12 or 14 million. This means they are cross-collateralized with other assets, properties, CDs, brokerage accounts, etc. These are more complicated to price and complete, but well worth the effort when you consider that the more expensive the property, the lower ltv a lender wants to give up.
You should have in reserves, after either purchase, stated or full doc, about 25% of the value of the house. If you are a strong borrower (huge credit scores, low loan to value) you'll get by with less. I've done a loan for 4.5 million, at 78% LTV with about 750K in reserves . . . that's half what you'd expect, and it worked.
As of 10/2006 a standard interest only loan for $6 million is going to run in the $35,000 per month range, so your income should be $90 to $100 K per month, or your trust account should pay that much. The pay option arm could drop the payment to about $10,000 a month . . . but you have to qualify at the full payment.
You can see how that $25,000 per month in your investment program could make a big difference over five years . . . as long as you're making money. Because unless you sell the house before your option payment period is over, you're deferring interest at the rate of $25,000 per month, too.
Send me an email if you've questions on any of these programs; in most cases we have solutions for the most complicated deals.
And, I wish you the best! I think we should all live in six million dollar houses.
