Often times some of my wealthy borrowers call me to see what is happening in climate is in the luxury lending market. The good news is AFFLUENT BORROWERS HAVE AS MANY OPTIONS NOW AS THEY DID LAST YEAR. Many wealthy borrowers who are looking to buy a luxury home are faced with a important decision. To borrow, or not to borrow, that is the question.
Lenders are cutting back on high risk loans, but are ready to fund on the super jumbo programs. The reason is simple, high net worth borrowers have a pattern of paying back mortgages. While many first time buyers and subprime borrowers are unable to afford rising costs, affluent borrowers have the funds to make sure that their mortgage is paid.
Below are two secenarios, you tell me who you would rather lend to:
1. A couple who make $8000 per month. They are on a salary and are looking to buy a $500,000 home with a $25,000 down payment. Their LTV is 90% and they have a 720 fico. They are looking for a 7/1 ARM and don't want to have to pay mortgage insurance. The rate is going to be 7.5% and it will cost him two discount points.
2. A business owner who has a net worth of $3,500,000. He is looking to buy a $5,000,000 with a down payment of $500,000. The borrower is also willing to deposit $1,000,000 into the bank that is willing to fund the loan (he wants to minimize his down payment and stay liquid) and is looking for a 3/1 arm. The rate for the client is going to be 6.75% with 1 point.
Both borrowers have the same loan to value ratio, borrower one has a guaranteed salary, and is going for a more conservitive loan. Why is it that the bank will give borrower two a lower interest rate on a higher loan amount? Simply because the bank knows that no matter what happens, the second borrwer has more to lose, and has the ability to gain more. Since borrower two is willing to establish a banking relationship and make his deposits at the bank, he has a better profile for the bank. This bank is willing to lend him money at a lower rate, and as well as charge him less up front.
Wall Street always has an appitizer for various home loans, but portfolio lenders have an appetite for strong clients. Which borrower is the higher risk?
About HPM Financial: HPM Financial leads the credit repair industry with a industry high deletion ratio, money back guarantee, and an integrated Realtor/Loan Officer processing system. For more info go to Effective Credit Repair or call (800) 701-5022 ext 1.
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