A popular new twist is an interest-only mortgage–all your payments in the first years of the loan go just to interest, not principal. They can cut about $100 a month off the payments on a 30-year, $100,000 mortgage. And that can help a borderline borrower qualify for a bigger mortgage.
Sounds great, but consider the potential fallout of not paying down the principal right away. If your house fails to appreciate like you hope, you could owe money when you sell. Combine the interest-only payments with a low- or no-down-payment loan and you could be heading toward debt hell, warns Keith Gumbinger of research firm HSH Associates. “You can literally leverage yourself into a home you can’t own, pay for it for years and still not own it,” he says.
Instead, look for a more traditional adjustable-rate mortgage that you can qualify for. At 3.9 percent, they’re cheap compared with 5.9 percent fixed-rate loans. Or give up the dream house for now and buy the one you can afford. Sure, it may be humble, but someday it will be yours, and not the bank’s.
