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Watch out for an item in the contract that calls for a “balloon payment.” This involves a loan structure that keeps interest rates low for the first few years of the loan, but requires full payment of the principal in one lump sum at a later date. Loans of this type are generally issued with the understanding that they will be refinanced when the balloon payment becomes due, but they can catch some borrowers by surprise. You should inquire prior to closing to see if your loan includes a balloon payment.
some lenders will issue home equity loans known as “High LTV loans.” LTV stands for “loan to value.” While most home equity loans will be issued for no more than 80% of a home’s value, a High LTV loan can be issued, at a higher interest rate, for as much as 125% of the value of the home! Borrowers should be careful when taking out such a loan, however, as the risks associated with loans that exceed the value of the home are greater than with other types of loans.
Lenders will typically examine a borrower’s ability to pay, their credit history, their payment history and their overall ratio of debt to income. Lenders typically look for a debt to income ratio of 25-50%, although there really aren’t any hard and fast rules. Each lender will have their own guidelines. Borrowers with a good credit and payment history may find the lender to be more flexible on this.
The borrower should have a number of documents handy that the lender will require, such as paycheck stubs, tax returns from the last several years, and other proof of income. Failure to provide accurate information may increase the interest rate of the mortgage or disqualify the borrower altogether.
Do not forget that offering false information when applying for credit is a crime!
If you have a mortgage with a high rate of interest, you may wish to consider refinancing. You could consolidate your debt and lower your monthly house payment. Ameriquest Mortgage can make it easier to refinance now.
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