Financial experts say you shouldn’t buy a house until you qualify for a 15-year, fixed-rate mortgage. Although this statement holds true, many Americans don’t make the cut. The 30-year kind exists to serve most of those that dreamed, tried, and failed to benefit from the gains the 15-year home loan promises.
Why does the 15-year, fixed-rate mortgage approval elude most people? Any experienced mortgage broker in Oregon would give you these reasons:
They Can’t Handle High Monthly Payments
Instead of zeroing out the loan’s principal in 30 years, achieving it in 15 years can put a lot of stress on the monthly budget. The 15-year, fixed-rate mortgage offers more interest savings over time, but cutting the amortization period in half can render the payments unmanageable for many people.
They Don’t Have Substantial Cash Reserves
Savvy lenders scrutinize the cash reserves of 15-year mortgage borrowers to see whether they have sufficient liquid savings in case of job loss. Home loan applicants are required to prove that they have about one year’s worth of income in their bank accounts. Otherwise, they might be denied or wait for more time to save up until they meet the criteria.
They Have High DTIs
Paying for a high monthly payment directly affects the debt-to-income ratio of the borrower. By and large, the maximum DTI ratio lenders allow is 43%. Anything more than that raises the risk profile of the loan, prompting mortgage companies to be more meticulous.
They Want to Buy Expensive Properties
Buying a more expensive property means borrowing more money from the lender. With an amortization period of just 15 years, the borrower needs to have a high income, significant cash savings, and low-cost debts to qualify. Without meeting at least one requirement, it would be a no.
If you can manage a 15-year, fixed-rate mortgage and still buy an extravagant property, capitalize on your unique position. The 30-year home loan makes things more affordable, but the chance to build equity and finish your mortgage with less time is invaluable.