A luxury home is typically valued at one million or higher. These homes are the pinnacle of dream homes and luxury living. However, even with a high income, a luxury home that fits your budget may only be realistic with proper financial planning. Luxury homebuyers can utilize vital financial strategies to prepare for their next home purchase. You can save a lot of money on your high-end home. Whether you’re paying in cash or securing a jumbo mortgage, these tips will benefit your home-buying journey no matter how far along you are.

1. Eliminate Debts

Regardless of income or assets, debt can be a significant hurdle for any homebuyer or lender. However, strategically eliminating debts can significantly improve your financial standing, increase your net worth, and expand your mortgage options. This proactive approach lets you control your debt-to-income ratio, reducing the risk of foreclosure and paving the way for your luxury home purchase. Speak with a qualified financial advisor about which debts you can eliminate immediately and which debts to take more time with. Even if you can afford a luxury home outright, debt elimination can make your options more flexible.

2. Plan for 20% Down

If you are planning on purchasing your luxury home with a mortgage, try to aim to put down at least 20% of the home’s purchase price. This percentage establishes equity in your luxury purchase upfront and eliminates the extra mortgage insurance costs. Mortgage insurance is a safety net for lenders in situations where a homebuyer is riskier to lend to, and this typically includes mortgages with a down payment lower than 20%. The higher your down payment, the lower your monthly mortgage costs will be, which reduces your debt-to-income ratio.

3. Don’t Max Out Your Home Budget

In home-buying, you may be tempted to purchase the most expensive house you can afford according to your budget, but this may not be the wisest plan. Luxury homes are costly at any part of the price range, and a less expensive home can help you account for any income or asset loss. If your business or assets make less than anticipated, a less expensive home will be easier on your finances. You can find many high-end, luxury homes without paying millions of dollars unnecessarily. Consider your needs and wants in your home purchase before choosing a house simply for the purchase price. You can be smart about your investment without being overly frugal.

4. Consider Tax Incentives and Deductions

A homebuyer can take advantage of many tax deductions and incentives after buying a home. Property taxes, mortgage interest, home equity loan interest, and discount points are all key tax breaks. If you are married, your mortgage interest deduction limits rise, saving you even more money. Eco-friendly homes, particularly ones that utilize solar energy, may be subject to tax credits depending on location. Working with an accountant can help you maximize tax deductions, breaks, and credits specific to you. Suppose you are a first-time homebuyer or haven’t bought a home in several years. In that case, if applicable, you may look into what first-time homebuyer programs are available to luxury homebuyers.

5. Understand Luxury Loan Options

Researching your options regarding home loans is essential if you aren’t paying in cash. Depending on the home’s purchase price, you may need to secure a jumbo mortgage for homes up to about $2 million or a super jumbo mortgage for homes over $2 million. Conventional loans have a limit of around $700,000, which can vary by location and loan type. FHA (Federal Housing Administration) mortgages may be a better fit if you have a lower credit score. However, you’ll be subject to some strict pricing limits, which may not cover the entirety of your luxury home’s price. Certain areas have higher purchase price limits for FHA loans. For example, FHA loans in Arizona have a price limit of around $530,000 for a single-family home compared to $498,000 in California. Remember that some pricier areas have higher home purchase limits, even with FHA loans. Be sure to research all loan types and discuss which type may be best for your luxury home with your lender.

Conclusion

No matter how high your income may be, learning how to prepare for your next home purchase with intelligent financial habits is vital. Paying down any debt, preparing for homeowner tax deductions, and researching loan types can make your luxury purchase more affordable. Keeping your down payment as high as possible can open options for more flexible mortgages and lower monthly payments without worrying about mortgage insurance. These financial habits can help you establish more equity in your luxury home investment and enjoy high-end living without stress.