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SAD | Can any one explain what a interest only loan works? |
want to buy a home for 550,000 what type of credit score do you need |
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Adam S
|
Interest only payments work like this:
Lets say you want one of those 80/20 loans in order to finance the entire house, AND you have stellar credit...
PURCHASE PRICE: $550,000
1ST MORTGAGE
LOAN AMOUNT: $440,000
30 YEAR FIXED, INTEREST ONLY MORTGAGE
INTEREST RATE: 6.500%
You can use a household calculator to figure this out, unlike determining the payment on a fully amortized loan using the following sequence:
loan amt x rate(%) = yearly interest
yearly interest / 12 months = monthly interest payment
440,000 x 6.500% = 28,600
28,600/12 = $2,383
dont forget to calculate a second mortgage payment (higher interest rate)
2nd mortgage = $110,000
INTEREST ONLY HELOC 2nd MORTGAGE
RATE: 10.000%
110,000 x 10.000% = $11,000
$11,000/12 = $916 monthly payment
As such, if you add the first mortgage and second mortgage together, you get something like this:
FIRST MORTGAGE = $2,383
HELOC 2ND LIEN = $ 916
TAXES (approx 1%) = $ 458
INSURANCE = $ 60
TOTALY MONTHLY PAYMENT = $3,817/ MONTH...
These rates are probably a little on the low side, depending on how many points you plan on paying up front. In order to qualify for this scenario, you will likely need a 660+ FICO score. It is possible to finance up to 100% of your home down to a credit score of 560 (sometimes even lower!!) but the lower your credit score, the higher your rate will be.
10+ years in mortgage lending |
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barraganf2001
 |
Watch out for people who say the loan is interest only, but the loan is actually a negative amortization loan (principal keeps Growing). They usually sell you on a 1%, 2%, or 3% interest rate. This is a big rip off. A Interest only loans are good way to qualify for a home loan for a purchase. Your principal remains the same throughout the period of the loan in comparison with a negative amortization loan which the principal grows every month. Interest only loans usually last between 2-10 years. Thereafter you begin to pay principal and interest.
I've been in the business for several year and would love to help you with you purchase. I have a website that can show you the different type of loan and what your payment would be.
Frank Barragan
Meridian Capital Mortgage
www.firstmeridiancapital.com
909-489-4692 |
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South Pacefic
|
Hi,
When you borrow money from bank they charge you interest for just giving you money. Now, in the duration of paying back the money you borrowed, you pay for both, amount you borrowed and the interest, usually, it is combined in your monthly note.
Interest only, is the type that you just paid the bank for the money you borrowed and the original amount, principle amount, remains unpaid. |
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W. E
 |
On a Interest only loan - you will need a higher credit score. 620 + depends on the Lender. You are paying the interest only over a 3 /5 /7 / 10 yr period, If you get an 2/27 5 yr I/O that is an adjustable interest only program, that is fixed for 2 years, but it goes up in rate on the 25 month, than again on the 61st month. But it is interest only, nothing is being paid on the principle loan amount. There are different interest only loans out on the market, this is just an example (ok)
Have you thought of doing a pick-a-payment: Where you have 4 different payment options, you get to pick the payment, including interest only. Than you have the fixed, and adjustable loans -
Talk with a broker, a broker underwrites for many company's (I underwrite for 150 companies) so I only have to pull credit 1 time, and they look at my credit. A single lender (not a broker) has programs available, but they may not be able to help you and your situation, so you go elsewhere, and than that person pulls your credit (see what I mean.) If you shop, your credit is pulled and that is considered a soft pull, for a 30 day period. Just like shopping for a auto, it is good for 30 days. If you apply for a credit card, that is considered a "hard" pull and it drags down your credit score. When looking for a home, please do not apply for a credit card, Department Charge Card, Gasoline Card or make any major purchases, like a auto, etc. This will pull your credit down.
Try to find someone (broker) that will pull your credit one time, and submit your loan application to company's that will go off his credit report. By the way, a loan application is called a 1003, and they will issue you a GFE (Good Faith estimate, with-in 3 days, that is per the RESPA laws, and the TIL (Truth in Lending). This will tell you the up-front closing cost (etc) associated with your loan. This is a estimate only - not the final - but it does help you figure things out.
Good Luck, and if I can help in any way check out my web site, for links to all the credit reporting agency's and other useful information |
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tkquestion
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Interest only loan works like this:
You get a loan for X amount of dollars.
Every months, you pay the interest you accumulated on that loan.
That's it.
Keep in mind though, you are NOT paying any part of the principal. If you keep doing this, in 10 years, you have exactly the same amount on your loan.
If the price of your house goes up, you are ok.
If the price of your house goes DOWN, now, you owe more money than your house is worth. It is called "UP SIDE DOWN."
To get rid of your house, you have to pay money to make up that difference.
If you had a conventional loan, you pay the interest + principal, so your principal slowly goes down. At the maturity of your loan, you have your house paid off. Meaning it is now YOURS.
With interest only loan, this will never happen, unless you pay more than what is required. |
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i w
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With an interest only loan you do not pay down on the principal. So your loan amount will never go down while you have interest only but if you are a first time home buyer this is what most people go for. You do however get all of the tax advantages of owning a home so all of the interest you pay you can claim on your federal return.
If you are looking for a home around 550K then your income matters more than your credit score. Credit above 700 is always preferred however that would not exclude yourself from a loan that amount. I am a mortgage broker based out of Virginia and if you need a broker then respond with your email and I can give you more info. |
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Pancakes
|
It's just another way for a bank to get money from people who can't afford a new home. Interest only is a loan which you pay the interest only for the first 5-10 years, then reapply for a standard loan. During that time, you will pay 0 towards your principle. If you sell your home within 10 years, you may find that you actually owe money to your bank. |
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rs_atwal
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You can obtain a loan w/ almost any score since a good mortgage broker has access to loans beyond those of just "A paper" (good credit). However the best rates usually come w/ scores of 700 or higher.
Interest only loans are usually only good for three separate scenarios:
1) Your unable to pay the full interest+principle payment and are planning on refinancing later anyway
2) Your purchasing a home that you don't plan on being in too long, say 1-3 years, since the principle you'll pay off in that time won't amount to much
3) Lastly, your flipping homes in a HOT market and you know it will stay hot, since the whole idea is to levarage as much as possible.
There are advantages to an interest-only loan, however if you can afford it, it's definitely better over the long term to obtain a 15 or 30 year conventional home loan. I'm a mortgage broker and would be happy to talk to you further about this. If your in California feel free to contact me through the following website: http://www.allurefinancial.com/contactus.html Best of Luck! |
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Dan
 |
First you must answer this question........how long do you plan on living in the home? If you intend to live there for less than 7 years I recommend an interest only loan as the amount of principle you would pay during that time frame would amount to peanuts. However if you intend to live there and raise a family I recommend a 30 year or even a 40 year fixed loan with full PITI payments. (Principle Interest Taxes Insurance) Interest only may allow you to qualify for a larger loan, thus its popularity. Homes are appreciating on a national average of about 6% per year, so you'll never need to worry about becoming "upside down" as that term only applies to depreciating assets. Now in regards to credit score needed for a 550k loan. Obviously the higher credit score the more leverage you have with a lender, however I have helped people get financed with 580 credit scores for 100% financing. With proper income documentation (pay stubs and W-2s) you should have very little problems getting financed. I work for a Mortgage Broker and specialize in creative financing so I hope this helps you but if you need any further help please email me at tadgeman@yahoo.com. |
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