Million-Dollar Home Sales Are Up. Can You Swing an Ultra-Expensive Home?
There's been an uptick in higher-end home sales. But is that a market you should even think about?
There's been a general shortage of homes on the market over the past number of months, as low mortgage rates have caused a spike in buyer demand. But there's one area that doesn't seem to be suffering from this shortage -- million-dollar listings.
The number of homes that sold for more than $1 million increased by 81% to 17,216 in February, up from 9,635 one year prior. Keep reading to see what's fueling this trend and what to do if you're thinking of buying a million-dollar home.
A more affordable prospect
Record-low mortgage rates have made the idea of buying an ultra-expensive home more enticing -- and affordable -- for a lot of buyers. The sale of luxury homes in the U.S. grew nearly 42% year over year during the first quarter of 2021, and during a good chunk of that time, mortgage rates were sitting at near-historic lows.
But it's not just low mortgage rates that have allowed more people to break into the luxury market. The stock market also had a stellar year in 2020. So some people may have cashed out investments to come up with larger down payments. Others may have sold their moderately-priced homes at a premium and used their proceeds to fund a million-dollar home purchase.
Can you swing a million-dollar home?
In some parts of the country, a million-dollar home is considered a luxury. But let's not forget that in some areas, $1 million will only buy you a starter home. Those areas, however, tend to be loaded with jobs that pay more generously. So if you move to, say, San Francisco, where $1 million may not even be enough for a starter property, you're likely to earn a much higher salary than you would in Topeka, Kansas.
But whether you earn an average salary or a six-figure income, if you're looking at buying a super-expensive home, you'll need to make sure you can really swing it. And to do that, you'll need to consider more than just your monthly mortgage payment. You'll also need to run some numbers to make sure you can afford the additional costs that come with buying a home, like insurance, maintenance, and repairs.
Don't forget that the more expensive the home, the higher your property tax bill is likely to be. And if you buy a home in a city with a high tax rate to begin with, that could wreak serious havoc on your budget.
Another thing to keep in mind is that if you're buying a home that costs $1 million, to make a 20% down payment, you'll need to come up with $200,000 -- and that's not an easy thing to do. But if you're buying a home in that price range, you'll generally need a jumbo mortgage, and many jumbo mortgage lenders impose higher down payment requirements. You'll also need a strong credit score to qualify for a larger loan. So if your score is only average, you may need to hold off on looking at higher-end homes.
There's been a more robust supply of higher-end homes on the market than lower-priced or moderately-priced homes, which helps explain why sales in that category exploded recently. If you're thinking of buying an expensive home, make sure it truly fits into your budget. The last thing you want to do is take on too much house and run into trouble after the fact.
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