Most Expensive Cities: Strategies For Buying In High-Priced Markets

Buying And Financing In Most Expensive Cities

If you purchase property in a high-end neighborhood or expensive metro, understand that mortgage financing is more challenging for those houses.

Home loans in higher amounts are more difficult to sell to investors, and many lenders consider them riskier. You’ll want to prepare in advance and get pre-approved for your mortgage before you go shopping in the most expensive cities.

Bigger Loans For Bigger Ambitions

In the mortgage industry, one way of classifying loans is by size. “Conforming” loans, for example, must meet guidelines established by Freddie Mac or Fannie Mae. One of those guidelines limits the size of the loan.

There are also guarantee limits for government mortgage programs like FHA, VA and USDA.

Mortgages for the priciest properties are often called “jumbo” or “non-conforming” home loans. The largest may be called “super-jumbo” mortgages.

Conforming Loan Limits

In 2024, the maximum amount for a conforming loan will is $. This is the limit for a single-family home in most U.S. counties. Limits are higher for 2-4 unit properties.

In higher-priced markets like San Francisco and New York City, the limit may be stretched as high as $. The loans are sometimes called “jumbo-conforming” or “super-conforming.”

In Alaska, Hawaii, Guam and the US Virgin Islands, limits are higher still.

A jumbo mortgage is required for amounts above these borrowing limits.

Qualifying For A Jumbo Mortgage

Getting approved for a jumbo mortgage can be more difficult than for a smaller loan if you’re not highly-qualified, but it’s not impossible.

If you’re a solid applicant with a high FICO score (>720) and enough emergency savings to cover at least six months of mortgage payments (“reserves”), many mainstream lenders will finance up to 90 percent of the home’s value.

Applicants with good credit, income and reserves can be approved with 20 percent down under these same programs.

Loans For Challenged Borrowers

The lower your credit score, the higher your down payment, income and reserve requirements will be. Fortunately, there are alternatives to mainstream financing.

John Brumund, Senior Vice President with The Money Source in Melville, New York, says, “However, these loans are inherently riskier than traditional jumbo loans and may have more snags during the loan process due to the subjective nature of the underwriting guidelines.”

Portfolio Lenders

Borrowers can also pursue jumbo and super jumbo loans from banks and investors who treat these loans as investments within their portfolios, according to Dana Graham, agent with Berkshire Hathaway Home Services.

“The good news here is that the borrower generally doesn’t have to meet a series of rigid criteria to qualify—the lender looks at it as a business proposition that either makes sense or doesn’t,” says Graham.

Extending Your Affordability

If that big-ticket abode is still out of reach, these strategies may land you that coveted address, say the experts.

For starters, try lowering your expectations for size, condition and amenities of the home.

“Consider a foreclosed or distressed property — foreclosures in great shape allow for discounted pricing,” says Bobbi Meyers, principal broker with Atlanta-based Brown Meyers Brokers.

Buying a fixer-upper in a good area is always a good strategy, as it maximizes the return on the investment you make by fixing the property up, adds Graham.

Another time-tested tactic in these circumstances is to find a partner on the deal.

“Have a co-borrower or co-signer who has good income and good credit to help qualify for more home,” says Andrew Saltman, principal broker of Carbon Capital in Ponte Vedra Beach, Florida.

The Multi-Unit Advantage

Saltman suggests a further creative scheme: become a landlord in the most expensive cities by purchasing a multi-unit property in which you occupy one unit and rent out the others.

First, conforming and limits are higher for multi-unit properties. You may be able to avoid applying for a jumbo mortgage.

Second, the rental income can be used to beef up your income and can lower your debt-to-income ratio.

Keep It Clean

Tendering a clean offer with pre-approved financing puts you in a better position to score a more desirable deal on a deluxe location.

“The best strategy when looking to purchase a home in a high-priced market is to be prepared by having a loan approval from a reputable lender, proof of funds for the down payment, and the willingness to put down a respectable deposit,” Brumund says.

Finally, be prepared to walk away from any home or area that is, for all practical purposes, out of your financial league and that makes you disproportionately “house rich” but “cash poor.”

What Are Today’s Jumbo Mortgage Rates?

For 30-year fixed-rate mortgages, jumbo mortgage rates are usually higher than their conforming counterparts. Adjustable mortgages, like the 5/1 ARM, however, can sometimes come in lower than conforming ARMs. It pays to compare.