Million dollar home loans are being handed out in record numbers even as many first time buyers are still finding it hard to get a loan.
Erin Gorman, managing director at Bank of New York Mellon Corp, said that she has seen more borrowers looking to take out $2 million dollars loans than at any time in the past. Some of the borrowers are even taking out loans to purchase second properties.
“These high-net-worth borrowers do act differently than first-time buyers, who borrow because they have to,” said Gorman, who serves as the national mortgage sales director. “High-net-worth borrowers don’t have to borrow. They choose to, so they’re very strategic about what, why, and when they borrow.”
Jumbo Loans on the Rise
The number of Americans who took out a home loan from $1 to $10 million in the most densely populated cities of America stood at more than 15,000 in the second quarter of 2014. That is the highest number ever recorded according to property data firm Corelogic.
There are a number of potential reasons why there is a sharp increase in high volume loans. Many wealthy buyers are looking to capitalize on their investments as the stock market rises and home prices surge upwards. The goal in many instances is to sell these homes for more than their purchasing price and thus turn a profit.
Many of these high end borrowers don’t even necessarily have to borrow in order to come up with the money they need. They do so strategically. At the same time, first time buyers are finding it hard to enter into the market. These buyers simply don’t have the credit scores that many lenders are looking for.
Right before the collapse of the housing market back in 2008, first time buyers made up about 35% of all borrowers. In June of this year, they only made up about 28% of existing home sales. Though many of the new first time buyers entering the market may not qualify for conventional loans, they may qualify for FHA loans. These have lower credit requirements than most loans which makes them especially attractive to first time buyers.
Credit Availability Increases with New Jumbo Loans
Mortgage credit availability has been increasing slightly ever month and that has continued from June to July, according to a report from the Mortgage Bankers Association. The increase was primarily due to a rise in the number of adjustable rate jumbo loans. Jumbo loans are simply loans that are above conforming loan limits. This limit may be higher or lower depending on where one lives.
Whenever credit availability decreases that means that lending standards are tightening. Whenever credit availability increases, that means lending standards are loosening. So, if you were not able to get a loan several months ago, this means that your chances of getting a loan now have improved slightly. Lending standards still aren’t as loose as they were back in 2008 before sub-prime mortgage crisis. But there is still an upward trajectory meaning more and more people will eventually be able to qualify for a loan as time goes by.