Opportunities
1. Lower monthly payments
The main and obvious advantage of an interest-only mortgage is its low monthly payments. This benefits buyers who are looking to buy a relatively expensive property, since an interest only loan allows you to buy a pricier house than you would be able to afford with a standard fixed-rate mortgage. Lenders calculate the amount you can borrow based on your debt-to-income ratio, and if your monthly loan payments are low, the amount you can get for a loan goes up.
2. More control over where you put your money
Lower monthly payments on your mortgage give you the freedom to invest some of your money elsewhere since you'll be freeing up more of your expendable cash. With an interest-only loan, the money that you don’t have to spend on large monthly mortgage payments can be used to pay other financial obligations.
Also, if you’re juggling a few goals on top of owning a home (such as putting up a business or going to graduate school), you can really benefit from the increased cash flow that is made possible by an interest-only loan.
3. Greater flexibility with payment schedules
An interest-only loan allows more flexibility in terms of balloon payments. Which is a great thing, since the best way to manage an interest-only loan is to make principal payments whenever possible. For example, if you get an unexpected bonus or raise, you can choose to apply the extra money towards the principal. This way, any differences in your standard of living won't be affected. Doing this will also decrease the risk of your monthly payments shooting up to an unaffordable amount. In any case, you can easily go back to just paying the interest amount in the event of sudden medical expenses or temporary unemployment.
4. Less pressure on first-time home buyers
For first-time home buyers, an interest-only loan provides them more time to increase income before the interest-only term expires.
Since you can defer large payments into future years when you expect your income to improve, there is less pressure on paying off your mortgage for the first 5 to 10 years. Take advantage of this by shifting your focus towards growing your finances.
Risks
1. Being unprepared for higher payments
Compelling data shows that up to a third of borrowers with interest-only loans may not realize that the loan will convert. UBS writes that approximately 3 out of 10 people who take out interest-only loans have little understanding of the product, and are unaware that their repayments will jump by 30 to 60 percent at the end of the interest-only period. This can be very dangerous assuming that they cannot afford the higher payment when the “teaser rate” expires. If they decide to sell, they get nothing since they haven't got any equity in the home.
However, even if you are aware of the terms of an interest-only loan, don’t make the mistake of being unprepared for when the loan converts to a traditional mortgage after the end of the interest-only term. Have a realistic foresight of what your income will be in a few years. Banking on unsure sources of income can be disastrous when higher payments on your loan begin. This means that you can’t solely rely on that promotion your boss keeps promising you, or on an investment that isn’t generating enough returns.
2. A rise in interest rates
Many homeowners will want to utilize refinancing as a way of lowering their monthly payments, but this will not be a good idea if interest rates rise. Some may even rely on refinancing to fund major purchases and get rid of debt, but a rise in interest rate will have a significant impact on monthly payments as well.
3. A decline in housing prices
What makes interest-only mortgages a high-risk choice is the possibility of housing prices going down. Homeowners who take this kind of mortgage may land a poor deal for the home if they plan to sell before the loan converts. When housing prices fall, some sellers are left with no choice but to default on the mortgage, which is likely to end up being worth more than the house.
Honesty is paramount to anyone who is interested in getting an interest-only mortgage. This means having an honest assessment of your capability to use the loan properly and as part of a strategy, and not just to take advantage of low monthly payments (without having a long term plan to afford it when the loan eventually converts).
If you do have a plan, be sure that you have every intention to follow through. Otherwise, you may end up with large monthly payments that you cannot afford. If your income is irregular like the majority of people who take interest-only loans, it is advisable to keep your monthly obligations low and make lump-sum payments when you have the extra cash.
With low monthly payments during the interest-only period, you'll definitely be able to free up a substantial amount of expendable cash. The key is to make use of this money wisely, and to not spend it on things that won’t serve you well into the future. Instead, choose to invest the extra money in repayment vehicles that are proven to give superior returns, or use it to pay off any other debt you may have.
This way, you can expect a bigger return and then when the loan is due, and you won’t have to worry about not having enough money to pay it off.

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Pre-Approval

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Under Contract or Escrow

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Appraisal

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Inspections

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Counseling Session Activities
- Prepare the buyer for executing a buyer representation agreement
- Explain agency relationships to the buyer and get state required legal consent to represent, if needed
- Inform the buyer of working relationship based on state law, the REALTORS® Code of Ethics, and the broker’s business policies
Building a Relationship
- Learn the buyer’s wants and non-negotiable needs
- Understand the buyer’s budget and what will be needed financially
- Help the buyer understand what property their chosen budget will buy
- Consider having the buyer fill out a homebuyer’s checklist
- Assist the buyer in examining how much they can afford to spend
- Provide quality lender resources
- Partner with the buyer to locate suitable properties for consideration
- Match the buyer’s needs with available property
- Constantly re-evaluate buyer’s needs and refocus property showings to fit those needs
- After ensuring the buyer understands what is done for them, how it is done,and the benefit to them, obtain signatures on the buyer representation agreement
- Explain how compensation is paid, who pays it, and what the buyer’s options are for paying it
Educating the Buyer
- Communicate the working relationship based on state law, the REALTORS® Code of Ethics, and the broker’s business policies
- Explain Federal and State Fair Housing laws
- Explain what to look for in applicable property disclosures
- Reassure the buyer that their personal information will remain confidential
- Inform the buyer that you will always disclose all known material defects
- In accordance with state law, provide information on checking the sex-offender registry and crime statistics for the neighborhood
- Discuss available resources that the buyer can check to learn more about prospective neighborhoods

Preparing the Buyer
- Explain the timeline for house hunting, mortgage approval, and closing
- Explain the local market and how it impacts the buyer
- Show statistics on what percentage of list price sellers in the area are currentlyreceiving
- Inform the buyer on what home features are popular
- Identify current average days on market
- Share the dangers of using the price per square foot to figure home values
- Explain the concept of absorption rate and how it impacts the buying process
- Indicate current listing months of market inventory
- Share estimated potential out-of-pocket costs to complete the transaction
- Assist the buyer in analyzing the loan estimates
- Qualify the buyer for financial ability to purchase
- Help the buyer account for the complete costs of homeownership
- Prepare lender for listing agent calls
- Assist in comparing different financing options
- Help the buyer select for viewing only those homes that fit their needs
- Proceed in showing homes that fit the buyer’s must-haves
- Caution the buyer on posting information to social media
- Review the sample sales contract so the buyer is prepared when it comes time to make an offer
Showing Properties
- Schedule showings and provide access to all listed properties as soon as they become available in their local MLS broker marketplaces
- Educate the buyer on the immediacy of new listings appearing in their local MLS broker marketplaces and the lag time for them to appear on some websites
- Collaborate with the buyer on properties they may have learned about through their sphere contacts
- Research and assist on all unlisted properties the buyer wishes to see
- Preview properties prior to showing if needed
- Network with other agents to source properties not yet in their local MLS broker marketplaces
- Contact homeowners in focus areas to see if they are considering selling
- Set up an automated email alert system through their local MLS broker marketplaces that immediately notifies the buyer of properties that fit discussed requirements
- Arrange a tour of areas, schools, and key points of interest
- Provide resources containing neighborhood information on municipal services,schools, etc.
- Inform the buyer of negative aspects like nearby venues or operations that may result in issues that could impact value
- Collect and share any other vital information on available homes, remembering to follow all fair housing laws at all times
- Check applicable zoning and building restrictions
- Help the buyer decipher public property and tax information
- Collect and share pertinent data on values, taxes, utility costs, etc.
- Compare each property shown to the buyer’s wants and needs list and remind them of what they were looking for
- Help the buyer narrow the search until the buyer identifies top choices
Negotiating Offers
- Assist the buyer in getting the best property at the best price
- Suggest that the buyer learn more about the neighborhood prior to makingan offer
- Prepare a comparative market analysis (CMA) in advance of making an offer
- Prepare the buyer to have the most attractive offer in the current marketplace
- Explain common contract contingencies and include approved protective clauses in the purchase offer
- Ensure that the buyer receives and understands all state and federally-required disclosure forms
- Prioritize contract negotiation goals with the buyer
- Help create a negotiating strategy
- Use strategies such as an escalation clause to maintain a competitive offer
- Prepare the buyer for a multiple offer situation and develop negotiation strategies
- Write an offer that has a reasonable chance of being accepted
- Recommend optional contingencies and explain the pros and cons of using them
- Provide information on purchasing incentives that may be available
- Discuss financing alternatives
- Negotiate the buyer’s offers to arrive at the best price and terms
- Utilize hyperlocal expertise and strong communication skills to assist the buyer in being the successful offer

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