why did they only offer me a balloon mortgage?

Anonymous · ‎05-06-2017

Yesterday I went to see the bank for a mortgage loan on a house with an asking price of 59k. The score they pulled was 683. My DTI is under 25. My annual income is 28,600 before taxes. Using land property i inherited for the 11,900 down payment since i didn't have the full downpayment.

When I first went in to the bank, she asked me my monthly income, ran my credit score and after that told me I would need to do a balloon mortgage for 15 years at 5% but refinance after 5 years and that my DTI was really high and that I may need to have someone go on the loan with. She told me that if I did the 20 year balloon it would be 6.71% and a 30 year would be 8% We talked and she told me she would submit my application but for me to try to get a firm price on the home and when I left she noticed I brought my tax papers and said she needed to get copies, when she was copying my tax papers she realized she'd only been using half my income and she re-did my DTI and realized it was under 25 but we didn't get to talk much more after that.

My question is, why did she only offer me a balloon mortgage? I don't want a balloon mortgage because after I left the bank I started to look up what that exactly meant and I don't like that idea at all. Is it possible she offerred me the balloon mortgage because she thought I made 1,100 a month when I actually make 2,200?

I hate to feel like I wasted my time and her time with this application but I really don't want a balloon mortgage, I have read nothing but bad things online about it.

StartingOver10 · ‎05-06-2017

@Anonymous wrote:
Yesterday I went to see the bank for a mortgage loan on a house with an asking price of 59k. The score they pulled was 683. My DTI is under 25. My annual income is 28,600 before taxes. Using land property i inherited for the 11,900 down payment since i didn't have the full downpayment.

When I first went in to the bank, she asked me my monthly income, ran my credit score and after that told me I would need to do a balloon mortgage for 15 years at 5% but refinance after 5 years and that my DTI was really high and that I may need to have someone go on the loan with. She told me that if I did the 20 year balloon it would be 6.71% and a 30 year would be 8% We talked and she told me she would submit my application but for me to try to get a firm price on the home and when I left she noticed I brought my tax papers and said she needed to get copies, when she was copying my tax papers she realized she'd only been using half my income and she re-did my DTI and realized it was under 25 but we didn't get to talk much more after that.

My question is, why did she only offer me a balloon mortgage? I don't want a balloon mortgage because after I left the bank I started to look up what that exactly meant and I don't like that idea at all. Is it possible she offerred me the balloon mortgage because she thought I made 1,100 a month when I actually make 2,200?

I hate to feel like I wasted my time and her time with this application but I really don't want a balloon mortgage, I have read nothing but bad things online about it.

Welcome to MyFICO!

The problem appears to be with the bank - and not you. I the home you are building a stick-built type (built on site) or is it modular? That may make a difference in the program - I don't know.

I think you need to speak to a couple of regular mortgage lenders that are not banks. Banks are pretty conservative today in comparison to how they were a decade ago and in comparison to the non-bank lenders that originate mortgages. Not all banks are conversative, but many are. They have overlays that make more restrictions on the mortgage guidelines.

There really is nothing wrong with a balloon, but if you don't want one - don't get one. I don't know why she only offered a balloon. It could be that her bank is running a special on it - you never know. IMO it would be better to go elsewhere to get your mortgage. Not Quicken Loans or big box banks either. A big box bank is Chase or Wells Fargo or BOA - they are awful at originating now. I will pm you a couple + there are other lenders that you can check out right here on this board.

Feel free to ask any question. There is no obligation to use anyone here either....ask anything.

Anonymous · ‎05-06-2017

Thank you for replying!

I'm not building and it's not a modular/mobile. The home is a single family home with 2 stories and a basement, not a lot of land -a little over an acre and a half. The home's price is low because it is in an unideal location (near major highway and also in a curb.) The home for me has the room I need for the four of us, not even 2 miles from my work and less than a mile from my family- it keeps us in the area we currently live, but closer.

I'm not sure why they only offerred balloon, but I couldn't find anything positive about the mortgage.

1) I don't know what happens after the 15 years, the payment was kind of steep at 5% interest ($531 i believe.) so I don't know if the home is paid off after 15 years or if I have to take out another loan - I simply don't know and i'm only 27 and my parents sent me in a loan.

2) Each time I refinance, will I be refinancing for 59k -or will their be interest from the other loan added in? If I take out a loan for 59500 at 5% wont I be paying back around 100k when its done?

3) I don't like the idea of refinancing it every 5 years for fear that the payment and interest would go up. Everyone I seem to know has heard a horror story or knows 'so & so' who got a balloon mortgage and their loan went up a ridiculous amount after they refinanced and they werent able to keep the home and lost it. I also have people telling me that if the housing market fell like it did a few years back, when interest rates got high and property values went down, that a lot of people in balloon mortgages weren't able to refinance their homes because the home wasn't worth what it used to be.

I'm not sure if the home will qualify for a lot of different loans, it's an older home (built in the 50s I believe) and it's not with-in city limits. The home hasn't been upgraded in a long time, the only thing that has been updated recently is the electric and it now has central heat/air.

StartingOver10 · ‎05-07-2017

@Anonymous wrote:
Thank you for replying!

I'm not building and it's not a modular/mobile. The home is a single family home with 2 stories and a basement, not a lot of land -a little over an acre and a half. The home's price is low because it is in an unideal location (near major highway and also in a curb.) The home for me has the room I need for the four of us, not even 2 miles from my work and less than a mile from my family- it keeps us in the area we currently live, but closer.

I'm not sure why they only offerred balloon, but I couldn't find anything positive about the mortgage.

1) I don't know what happens after the 15 years, the payment was kind of steep at 5% interest ($531 i believe.) so I don't know if the home is paid off after 15 years or if I have to take out another loan - I simply don't know and i'm only 27 and my parents sent me in a loan. What happens if you have a 15 year amortization is that the loan is paid off at the end of 15 years -assuming all payments are made on time. If you have a ballon at 5 years then the balance is due in 60 months. You can refinance into a different loan. You are right, you would have to refi at the market rates at that time and we have no idea what they will be in 5 years.

2) Each time I refinance, will I be refinancing for 59k -or will their be interest from the other loan added in? If I take out a loan for 59500 at 5% wont I be paying back around 100k when its done? You would be refinancing for the remaining balance at the time of the refinance. You can go to bankrate.com and input the terms (interest rate, initial principal financed and 15 years) and you can then see an amortization schedule as to how much is left to refinance. That calculator will only show your principal and interest. Your taxes and insurance aren't included in the amortization schedule.

3) I don't like the idea of refinancing it every 5 years for fear that the payment and interest would go up. Everyone I seem to know has heard a horror story or knows 'so & so' who got a balloon mortgage and their loan went up a ridiculous amount after they refinanced and they werent able to keep the home and lost it. I also have people telling me that if the housing market fell like it did a few years back, when interest rates got high and property values went down, that a lot of people in balloon mortgages weren't able to refinance their homes because the home wasn't worth what it used to be. Yes, it is possible that the interest rate may move up and become unaffordable when you need to refi. That is the downside of a balloon mortgage. Or you may not be in the best financial condition to refi. Those reasons support your idea of having a fixed mortgage for the time you need it, You can get a 15 year fixed, 20 year or 30 year. Or even a different number - whichever you feel is best for you now,

I'm not sure if the home will qualify for a lot of different loans, it's an older home (built in the 50s I believe) and it's not with-in city limits. The home hasn't been upgraded in a long time, the only thing that has been updated recently is the electric and it now has central heat/air. I have had homes financed in the country and the city. With updates and without updates. In the last couple of weeks 3 of the homes I have sold have been older (50's - 80's). It is more likely that the lender doesn't have the right program for you.

Most people don't know that lenders are truly widely divergent in their programs they choose to carry to finance homes. I love CU's but not for mortgages (in general). They usually have a limited array of mortgage programs from which to choose and they farm out the actual processing to a third party (not always, but many times). The same is true of a small regional bank. Sometimes the small regional bank has a specialized type program that is very helpful - othertimes they just have a very small choice of mortgage programs.

If you go to a non-bank mortgage lender that only originates, underwrites and funds mortgages you will see that they have a great variety of programs and it is more likely that one will fit your needs.

Anonymous · ‎05-07-2017

Thank you also for replying and answering my questions. I'm extremely new at this and it's a bit scary.

I think i'm going to call the bank monday, see if they can offer another mortgage and if they can't, i'm going to ask for my application to be withdrawn before it's submitted thursday to the loan committee.

I'm not sure what kind of options I have near me, I looked online for mortgage lenders near me and my results were:

American Mortgage Service Company

Chase Mortgage

Branch Banking & Trust Company

Wells Fargo

Cole Taylor Mortgage

I found a few mortgage brokers - not sure what that really means. Are morgage brokers people that get you in touch with the right kind of loan for you even though they don't actually give you the loan, someone else does?

medicgrrl · ‎05-07-2017

@Anonymous wrote:
Thank you also for replying and answering my questions. I'm extremely new at this and it's a bit scary.

I think i'm going to call the bank monday, see if they can offer another mortgage and if they can't, i'm going to ask for my application to be withdrawn before it's submitted thursday to the loan committee.

I'm not sure what kind of options I have near me, I looked online for mortgage lenders near me and my results were:

American Mortgage Service Company
Chase Mortgage
Branch Banking & Trust Company
Wells Fargo
Cole Taylor Mortgage

I found a few mortgage brokers - not sure what that really means. Are morgage brokers people that get you in touch with the right kind of loan for you even though they don't actually give you the loan, someone else does?

Mortgage brokers can be a great option if you are borderline on qualifying. They do not fund or service a mortgage. They take your application, process it from start to finish, work with many different lenders on the wholesale side and determine which lender you will qualify with. They submit your application to the lender for approval and then the lender funds the loan and may or may not service it after closing. Find a reputable broker in your area and discuss all of your concerns and they will tell you if they have lenders that you qualify for. Also, if you have a Realtor, ask them about referal's to a good broker.

EQ 778 EXP 782 TU 729

StartingOver10 · ‎05-07-2017

I sent you a pm with two excellent lenders that loan all across the US (contiguous 48 states). Each are excellent - try one or both too. On the list that you provided I wouldn't go to the first four at all and the last one I don't know so I can't comment on their reliability or capability.

Anonymous · ‎05-09-2017

Thank you again!

I talked to the loan officer at the bank, I misunderstood her - I have other options but she recommended the balloon mortgage because I could get the interest for cheaper. I have a meeting tomorrow with the realtor to make an offer on the home. Very nervous.

medicgrrl · ‎05-10-2017

Those rates are pretty high. I would ask about that too.

EQ 778 EXP 782 TU 729

DallasLoanGuy · ‎05-10-2017

small banks who dont sell their loans offer these to protect themselves against rising interest rates.

Retired Lender