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Mortgages: Why The 1 Percent Sometimes Get A Loan

Mortgages for the 1 percentAccording to the National Association of Realtors the typical existing home sold for $228,700 in August, a curious figure given that a large percentage of all mortgages are substantially larger. Even if we consider new homes, which now have a typical sale price of $292,700, lots of Americans are still in the market for very large mortgages.

Figures from the Mortgage Bankers Association show that a surprising number of large mortgages are being issued nationwide, far more than home sale prices might suggest.

First, we have borrowers who need smaller loans, in many cases first-time buyers. Loans of $150,000 or less represent 30 percent of the market. While smaller loans may not be common in major metro areas along the coasts, they are a very reasonable form of financing in many smaller markets.

Next we have borrowers who finance between $150,000 and $300,000. This group represents 39 percent of the market and the biggest share among all borrowers. Another way to see these numbers is to say that loans for less than $300,000 represent 69 percent of the market.

Loans from $300,000 to $417,000 hold a 15-percent market share. Now we can see that 84 percent of the market is represented by borrowers who seek loans that potentially can be purchased by Fannie Mae and Freddie Mac in all jurisdictions.

Mortgages For The 1 Percent


Above $417,000 we are beginning to see financing for those in the upper brackets. Buyers who want loans between $417,000 and $625,500 are used by 9 percent of all home buyers and another 2 percent need financing from $625,500 to $729,000.

Above $729,000 we are well into jumbo loan territory and it turns out that buyers who want such loans represent 5 percent of the marketplace.

Except for VA financing, loans require money down. FHA borrowers need at least 3.5 percent up front while some conforming loans are now available with as little as 3 percent down. If we combine amounts borrowed with minimum down payments we can see that most home sales are well below $300,000.

What about folks in the mythical 1 percent, the top of the market? You’re not likely to find them in the mortgage marketplace. They’re typically part of the cash-buyer crowd, a group which now represents a little more than 20 percent of the marketplace.

That said, you may well find members of the rich and famous who take out mortgages. Why? It’s not that the 1 percent need the money, instead they’re locking in low rates for long-term financing, freeing-up cash they can use for other purposes.

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