The 40-Year Mortgage Loan- What Houston First Time Home Buyers Need to Know
Hello again and welcome to Houston First Time Home Buyer Edition. I worked with a first time home buyer that wanted a certain price home and was not able to qualify for it using a 30-year mortgage. The monthly payments would have been a bit high, and he did not want a lower priced home. He also did not want an adjustable rate mortgage, which I did suggested.
The solution, a 40-year mortgage. Not only did my client applied and was approved for the mortgage, the longer loan term, plus the smaller payments, created financial breathing room the 30-year mortgage was not able to do. Here are a few things I want to share with Houston first time home buyers about the 40-year loan.
The 40-year mortgage is not for everyone.
Not everyone that apply will get approved for this loan.
Longer term mortgage loans are not new to the Unites States (1980) or in other parts of the world.
Japan introduced the 50-year and the 100-year mortgages during the 1980s, where buying a home had become almost impossible for most.
Some lenders in the U.K. still offer 40-year mortgages to help buyers afford property.
These longer terms mortgage make buying homes possible for people in the United Kingdom, Japan, parts of Europe, and now, hopefully, in the U.S.
40-years mortgage loans showed up in the U.S. during the 1980s when high interest rates made buying a home almost impossible.
40-year mortgage loans were also common in the early 2000s. However, updated lending rules caused big lenders to stop offering them after the housing crash.
The 30-year mortgage put home buying within reach of millions of Americans.
The 40-year mortgage may do the same, by stretching the payments across 10 additional years.
40-year mortgage work the same way a 30-year mortgage loan work, it's just longer.
Just like the 30-year mortgage, in the early years, most of the payment will be applied to the interest. The 40-year mortgage is the same.
Fixed-rate 40-year mortgage works the same way a fixed-rate 30-year mortgage works.
A 30-year mortgage loan require 360 monthly payments for full term.
A 40-year mortgage would require 480 monthly payments for full term.
40-year mortgage not only lower monthly payments but it may also allow home buyers to afford a higher-priced home.
Why not buy your home, get the lower payments and after seven or ten years or less, sell, or refinance the 40-year mortgage into a shorter term mortgage loan?
Will it cost more if you decide to stay in the home for the full 40 years? Yes, it will.
You will pay more in interest if you choose to carry the mortgage for the full 40 years.
Most lenders do not offer 40-year mortgage loan.
40-year mortgages are non-qualifying mortgages and are privately held by the issuing lender as a portfolio loan. The 40-year mortgage loan lender that I spoke with, confirmed this.
FHA created a 40-year loan option in 2023, but its' only for homeowners who are struggling to avoid foreclosure.
FHA does not offer 40-year mortgage loans for new home purchases.
VA loans can be extended to 40 years, if homeowners are behind on their payments and experiencing financial hardship.
Minimum credit score for a 40-year mortgage is about 640. The 40-year mortgage loan lender I spoke with in detail, said their credit score requirement is 700 and above.
Down payment requirement for a 40-year mortgage is between 5%-20%.
Debt-to-income (DTI) right at 45%
Must be the buyer's primary resident.
While the requirement for a larger down payment and a higher credit score may prevent some first time home buyers from qualifying for a 40-year mortgage, the benefits of the 40-year mortgage loan, that include lower monthly payments is sound, if you don't mind the extra interest payment.
However, if your plan is to stay in the home for 7-10 years, you can still benefit from the lower monthly payments, and sell or refinance into a shorter term mortgage later. Remember, a 40-year mortgage is NOT a forever mortgage loan. You can always choose to sell or refinance. Good new all around.
As always, thank you so much for stopping by. Remember, if you are thinking of purchasing your first home, please contact us. We are here to help. We have been helping Houston first time home buyers since 2011 and we can help you. I hope you have an amazing day. Until next time...Diana
