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Why Luxury Homes make Great Private Mortgage Investments

21 September 2013

So typically we think of unqualified buyers as being the ones that are out there searching for a private mortgage investor to fund their mortgage needs, right? Well, while this group is a great one to start off in private mortgage investing, it’s not the only one. And in fact, one of the best places to start finding borrowers might be the last place you look – it’s in the luxury mortgage market!

So why would buyers of luxury homes need to find a private investor? After all, if they have the money to pay for a million dollar home or more, why wouldn’t they be able to be approved from a major lender? Well, that might be able to; that doesn’t mean that they want to though.

The problem for them comes when it’s time to fork over that huge down payment. Even on a million dollar home, in order to avoid mortgage insurance a buyer would need to have a down payment of $200,000. And if they don’t, they’re going to not only need mortgage insurance (which can be extremely costly,) but they’ll also be limited to a 25 year amortization period. That means that their monthly payment will also be larger, which might be funds that they’re not willing to part with month after month.

And that’s where the private mortgage investor comes in. Because you are the investor, you can make the rules and not limit them to that 25 year amortization period. You can still ask for a large down payment if you choose, but by making sure that you use other strict qualifications in your mortgage approval process, such as high credit scores, you’ll be able to attract even more borrowers and make even more off of your investment.

Of course, there’s another reason why luxury homes make for a great private mortgage investment. The price of those homes is much more than traditional homes on the market, and so the borrower will be paying more for their mortgage payment every month. And that means that the capital will have bigger interest charges attached to it, and that you’ll make more from your investment.

There are a number of reasons to invest in private mortgages, and when you do, there are lots of reasons why you should invest in the luxury home market!

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