How To Finance Luxury Real Estate

Edited by Admin
How To Finance Luxury Real Estate
When Financing Luxury Real Estate its important to work with a team that has experience working similar files, especially if the mortgage amount is getting North of $1mil.  We get a lot of calls from Private Bankers, Wealth Managers, Top Performing Realtors, Lawyers and even other Mortgage Brokers looking for support on complicated files that require mortgages North of $1mil.  
Example of clients include:
-Business for self and/or running most of the income through a company versus personal income,
-Investors, both local and foreign,
-New to Canada, immigrating or transferring wealth,
-Both builders and end users purchasing land and constructing or purchasing homes to tear down and build.
Examples of other obstacles include:
-Corporate name or trust on title
-Push back on loan to value or overall mortgage limit
-Property type
There are many other obstacles but of the ones listed above the most common new trend is difficulty in financing for clients that are business for self, purchasing land or homes to tear down and construct and clients that have wealth from abroad but not enough income through traditional channels in Canada to qualify for a large mortgage.  The biggest value proposition we have through the broker channel is choice.  We have access to Banks, Credit Unions, Trust Companies, Private Capital and other resources that allow for creative financing solutions.  Our team has even partnered up with lenders offering further unique lending solutions, like access to an affluent lending program. Affluent Lending Programs typically involve a higher level understanding of the clients financials and working with their accountant to understand the servicing to support mortgage approval in a more unique fashion.
Below are a couple key points to consider when purchasing Luxury Real Estate and require a mortgage:
Down Payment: When purchasing real estate North of $1mil, especially North of $2mil financing homes gets complicated quick.  Lenders have different sliding scales, meaning the loan the will lender will approve in relation to the value of the home can change very dramatically from lender to lender.  
-An example: $3.65 million dollar home.   Some lenders finance 80% of the first $1.5mil which is $1.2mil.  Then 60% of the remainder ($3.65-1.5mil - $2.15mil*60% = $1.29mil). The total loan in this instance is $1.2mil + $1.29mil = $2.49mil which is a total loan to value of 68%.  In contrast there are other lenders that will finance up to 80% on any value up to $20mil and other lenders up to 75% on most property values in marketable areas but with different underwriting criteria that dictate the final loan to value.  These numbers can dramatically change the clients down payment and is an important factor in determining the appropriate lending solution.

Income: In an ideal world (from a lending perspective) everyone is salaried and their income debt services the mortgage.  In reality, income is not that simplistic, especially if a client is business for self.  The reality is, that if your salaried and can debt service the mortgage, that aspect is taken care of and we just need to focus on other factors like down payment and credit.  If your self employed and your personal doesn’t debt service the loan, there are options:
-Bank statements, that when annualized, debt service a mortgage, while taking into consideration adequate expenses.
-Accepting Net Income form business financials
-Accepting higher debt servicing ratios
-Providing debt servicing exceptions if the client holds liquid assets equal to the loan they are applying for after down payment is conisderd
-Accept no-income, straight equity lending.
With new rules and regulations that have come into the market in 2018 and 2019, specifically restrictions on stating income, I wouldn’t be surprised if the above list gets shorted but then at the same time other solutions become available, which is why the individual helming facilitate the mortgage has to have access to a lot of products and solutions and be very up to take with market solutions.
No Income: When clients have no income, its not that they don’t have income or cannot support a mortgage. Its typically they don’t or haven’t yet filed adequate income in Canada to qualify through traditional lenders.  It could be the clients are transferring wealth, have fairly new employment, funds coming from an estate, assets are in a large investment portfolio etc etc. In these circumstances we consider private lending solutions that are based more on the equity and marketability of the home than the income itself.  

With the above points taken into consideration, financing Luxury Real Estate isn't actually that complicated. What makes it complicated, is how the client files their income (Salary, BFS, Commission, Corporate Returns), what the lender requires in the form of down payment (Sliding Scale or not) or the property type (condo, island, land etc).  The best course of action is getting infront of these purchases early in the process and helping pre approve the client.  Even though everyone says there is no such thing as pre approving homes North of $1mil, and to some point I agree, there is no reason you cannot get the income and assets organized, discuss financials with the accountant and be prepared to give your client and referral source the best change for the approval they are looking for.  Most of thees files have amazing clients, high net worth clients and the files are approved.  Its more about if the approval is what is satisfactory to the client that just comes down to planning. 
We pride ourself in helping clients and referral sources in complex financing scenarios and would love to discuss any specific points or real life examples in more details
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