I heard there is a way you can get a house but your getting it with only payin interest. which means your slicing the cost in half for what you pay a month. can any one explain it to me? like if you were to buy the house and pay 1200 a month you would only pay like 600 but u would not be owning it u would be like renting like an apartment. but is it exactly half of what it costs? and can some one explain it more to me?
2007-02-20 14:05:12 · 6 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
It is called getting an "interest only mortgage"
It is not like half, but it is alot cheaper than a regular mortgage payment. The problem is you are not building equity in your house, just simply paying the interest.
So for instance if you buy a 100,000 dollar house and get an interest only mortgage, and pay say, 500 a month payment, in 5 years, you still owe 100,000. Whereas a regular mortgage payment may be 700 dollars a month and in 5 years you may owe something like 90,000.
And most mortgage companies limit the amount of years you can pay the interest only. It is usually like 3-5 years and then your payment gets higher.
This loan is only a good idea if your area is appreciating very rapidly and you plan on selling your home in a few years for a profit, or if you can only afford the interest only payment and you know that in a few years you will make more money and be able to refinance or make the higher payment.
2007-02-20 14:11:14 · answer #1 · answered by mpw814 1 · 0⤊ 0⤋
You still should get pre-qualified for the loan. It'll let you see how much you can afford & offer the sellers. What you are asking about is an interest-only loan. If you buy a house in a good area, where the property will appriciate well (go up in value, by just being where it is), then this is a good choice. In a normal loan, you pay part principal & part interest, every month. With an interest-only loan, you pay just the interest part of the payment. Therefore, it is always lower than a regular payment. It usually takes about 5 years to payoff the interest alone, then you start paying the principal (the actual cost of the house). This type of loan is also good if you are only planning on living in the home for a short period. If you turn around and sell it, and it appricaited well, you will make money. You are still owning it, the bank just has the "title" on the house. That's just like every other loan. It is just another type of loan. There are SO many to choose from. When you go in to get prequalified, ask about all your options. Good Luck!
2007-02-20 14:15:37 · answer #2 · answered by Anonymous · 0⤊ 0⤋
It sounds like you are referring to an Interest only loan. You are borrowing money and only paying the interest part of the loan. These are ONLY a good idea if you need housing now and are expecting a huge payraise in the near future so you could re-finance or begin paying down the principal. The downfalls of these loans are that you are only paying interest, so you aren't coming any closer to owning the home 5 years from now, than you are on the day you bought it. Many people who do this find themselves in deep trouble if they have to sell the home, because they have to pay closing costs and real estate sales fees, plus real estate taxes. If your home is not maintained well, or not kept up to date, it could end up being sold for less than what you paid for it. Then you wouldn't have a home and you would still owe the bank money! Plus you have to pay PMI (mortgage insurance), until you reach 20% equity in your home. If you are only paying interest, you will never reach 20% equity, so you'll be paying out that extra fee for the mortgage insurance far longer than you should. The quicker you can hit your 20% equity, the better.
What you need to do, is see a loan officer at your local bank. They can look at your income, and your credit score, and tell you what other programs you qualify for. There are all kinds of Rural housing, first time home buyer, or other loans out there to help you into a home at little or no money down. There is one called "Ameri-Dream" where the seller helps pay the closing costs. Of course you pay a little bit more for the house, and what your really doing is financing in your closing costs. There are 100% loans, 97% loans, and no-money down loans. Your loan officer can help you sort it all out. Some larger bank chains even offer their own lending programs, which can be very good. I know in Illinois, Marine Bank has one that gets you into a new home with only $500 out of pocket for all closing costs and everything. National City has some great loan programs too.
The loan officer can tell you what your monthly payment would be in a given price range including your taxes and insurance. They can also help you get any credit problems cleared up you may not realize you have. Getting pre-approved is always the best first step in buying a home. Different banks have different programs, so if your loan officer isn't really helpful, go to a different bank. Just make sure you ask for a copy of your credit report to take to the next bank with you. You can also get your own at www.annualcreditreport.com . Don't go on e-loan or anything like that. They send out your info en-mass and you end up with a BUNCH of hits on your credit, which can lower your credit score. The few hits, the better. If you have any old outstanding unpaid bills, you need to get them paid off ASAP or be prepared to explain why you didn't pay them or why you don't actually owe them. They will affect your credit score, which affects the amount you can borrow.
After you get pre-approved, your next step is to get a reputable Realtor. Contrary to what most people think, this doesn't cost you a dime. It only costs the seller. Some people think they will get a better deal if they deal with the seller directly, but statistics show that is rarely true. You end up un-represented, and the seller may hide things that a Realtor would catch. You also should never buy a home without a professional home inspection first.
Also, make sure you go to a Bank, not a secondary mortgage brokerage service. These services advertise as being mortgage lenders, but they can just be brokers who sell your loan and you pay a big fat fee at closing. Sometimes calling the Real Estate companies in your area and speaking with a Realtor can lead you to a good lending institution. You can also ask for an estimate of closing costs from different lenders, to see what kind of fee's they are tacking on.
2007-02-20 14:33:44 · answer #3 · answered by mschvs_65 4 · 0⤊ 0⤋
You're talking about an interest only mortgage. The following link will show you how a conventional mortgage is calculated.
http://www.hughchou.org/calc/formula.html
2007-02-20 14:25:10 · answer #4 · answered by Voxygen8 4 · 0⤊ 0⤋
You build no equity. I do not see any advantage over renting except possibly the tax write off.
2007-02-20 14:13:46 · answer #5 · answered by eric l 6 · 0⤊ 0⤋
play monopoly it might help!!!
2007-02-21 06:47:50 · answer #6 · answered by Amy 5 · 0⤊ 0⤋