Questions Frequently Asked About Interest Only Home Loans
Q: Is it true that my home won't gain equity with an interest only home loan? A: No. A big misconception about interest-only mortgage loans is that if you're not paying down your loan's principal every month, you're not building home equity. That's not necessarily true. Over time, homes in the U.S. appreciate an average of 3% each year. If you're in an area of the country that is appreciating, some better than others, you'll still be building equity, even with an interest-only loan.
Q: Are interest only home loans only for the wealthy? A: No. Interest-only home loans may also be a good option for people who expect to be in their homes for less than ten years (or the term of the interest-only note they're applying for). The average homeowner stays in their home between five and seven years. A far cry from 30 years. And many homeowners could benefit from the extra money available on these types of mortgages.
Q: Do I need exceptional credit to get an interest only home loan? A: Yes. As outlined elsewhere on this site, interest only home loans are a terrific benefit for those who are good with money. And those who are in this category typically have very good credit as well. It goes with managing your money well. You don't have to be a rich entrepreneur to qualify but you do need very good credit. And you might need a decent down payment as well. Some lenders require 20% down.
Q: Can I really afford more home with an interest only home loan? A: Yes! Interest only home loans allow the borrower to pay for an initial term of several years only the interest accrued. After the initial period the payments are increased to amortize the loan. So, the resulting lower payments during that initial term allows borrowers to qualify for larger or more expensive homes.
Q: What do I need to take with me when I apply for a mortgage? A: There are a number of documents that you should bring with you, whether you might qualify for an interest only home loan or not. Your lender may request others as well:
- Social security numbers for both your and, if married, your spouse, if both of you are applying for the loan.
- Copies of your checking and savings account statements for the past 6 months.
- A recent paycheck stub detailing your earnings.
- The name and address of someone who can verify your employment.
- Copies of your last two years' income tax statements.
- A list of all credit card accounts and the approximate monthly amounts owed on each.
- A list of account numbers and balances due on outstanding loans, such as car loans or other mortgages.
