I think that may be accurate at some level, but itâ€™s really a pretty stupid statement to make. Interest-only and even negatively amortizing loans do have a place in the market, and their absence is having a negative effect on todayâ€™s market.
The problem with those type of loans is they are very dangerous in the wrong hands they can have huge negative consequences. The people that I have worked with that were attracted to the negatively amortizing loans, etc. typically had inconsistent income. This would be self-employed people, general partners, commission only sales people, and people that have incomes affected by seasonal factors. These people benefit from having a smaller regular or required payment for these times when the cash-flow is low, but then can make significant principle payments when the cash is there. I think this is where the â€œaffluent borrowerâ€ label comes in; the reality is incomes that are less regular are also typically much greater as well. Interest-only or negativity amortizing loans given to borrowers who just want lower payment is a disaster in the making.
A few examples of borrowers Iâ€™ve done these type of loans for are: 1) a lawyer who took a draw of $40,000 a year as a partner but whose partnership distribution was in the mid six-figures, 2) a business owner whose business ran in the red for 10 months out of the year but made well over $200,000 during the Christmas shopping season, and 3) a high-steel construction worker who made over $150 an hour but would go long periods of no income when the weather was bad; he still made over $100,000 a year.... more
Most of those programs seem to run through CALHFA, basically it is a silent 2nd and you need 1/2% down. So some cities are signed up with CALHFA to offer it, we can go around and go straight to CalHFA. Anyway I find this is the case most of the time.
However as Raymondo put it the USDA loan would be better and there are a lot of areas that qualify there. This is a true zero down loan.
The company I work for WCS Lending, is one of the largest direct lenders for the USDA program. The mortgages are much less expesnive. If the property qualifies and you meet the income requirements, it is clearly a much better option.
NMLS 287206... more