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Interest Only Loans Easier to Qualify?


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If your income is a problem, it is easier to qualify for a non-conforming interest only loan, due to the fact that you can get more home for your money. Be a bit careful about going the I/O route for longer term.

Here is what happens. Loans are typically for a fixed number of years. So, lets say that you have a conforming loan that is I/O for 10 years, and you keep with the loan. That means that your payment adjusts to pay off the loan in 20 years, starting in the 11th year. So, not only are your payments going up due to the fact that you have to pay towards principal, but they are also going up because the amortization (number of payment the loan is spread out over) is 20 years instead of 30 years.

So when you get one of them, you have to consider if your income is going to go up that much.

One thing that you should consider is getting a loan with a 40 year amortization. Depending on the price of the home, the payments may be about the same as interest only.

One thing to be careful to understand is that most of them are 40/30's, which mean that the payments are amortized over 40 years, but the loan needs to be paid off in 30 years-so there is a big balloon payment. To my thinking, since the average home is either sold or refinanced in 5-7 years, that should not be a problem. In my case, should we never move/refinance, I would have to be concerned with a balloon payment when I am 85 years old. My thinking is that I won't care at that time.

Hope that helps, but to answer again the initial quetion, yes in most cases it will be easier to qualify just for DTI (Debt to income ratio) reasons.


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