Where To Find 40-Year Home Loan Lenders

40-year home loans aren’t very common, but they can provide some benefits for borrowers who qualify With lower monthly payments spread out over a longer time, 40-year mortgages can increase buying power and affordability However, these loans also come with higher interest costs and slower equity building. If you think a 40-year mortgage could be right for your situation, read on to learn more about these loans and where to find lenders who offer them.

What Is A 40-Year Mortgage?

A 40-year mortgage is a home loan with a repayment term of 40 years, rather than the more standard 15 or 30 years. With a longer repayment period, the monthly principal and interest payments are lower compared to shorter term loans for the same loan amount. However, you’ll pay more interest over the full loan term with a 40-year mortgage.

These types of loans can be structured as

• Fixed-rate mortgages – The interest rate and monthly payment stay the same for the full 40 years.

• Adjustable-rate mortgages (ARMs) – The rate is fixed for the first 5-10 years then adjusts periodically.

• Interest-only mortgages – You only pay interest in the beginning, then principal and interest later.

• Balloon mortgages – Payments are lower except for a large balloon payment at the end.

Why Are 40-Year Mortgages Uncommon?

You won’t find 40-year mortgages offered by most major lenders. There are a couple reasons for this:

• They are considered “non-qualified mortgages” by the Consumer Financial Protection Bureau (CFPB). This means they don’t meet the CFPB’s criteria for safer, more affordable loans.

• They don’t conform to the underwriting guidelines for Fannie Mae and Freddie Mac. So they can’t be purchased or guaranteed by these government-sponsored enterprises.

As a result, 40-year mortgages are seen as riskier by most lenders. They will mainly offer them as loan modifications to help existing borrowers avoid foreclosure.

When Are 40-Year Loans Used?

There are two main situations where 40-year home loans come into play:

New Purchase Loans

While rare, some lenders will approve borrowers with good credit for a 40-year purchase mortgage. The longer term can increase buying power and allow qualification for a more expensive home. But higher rates and interest costs make these loans less ideal for most buyers.

Loan Modifications

More often, 40-year mortgages are used as modifications for homeowners struggling with payments. The lender extends the repayment term to 40 years to drastically lower the monthly payment and avoid foreclosure. However, the homeowner pays more interest over time.

Pros and Cons of 40-Year Mortgages

Below are some key pros and cons to weigh if considering a 40-year home loan:

Pros

• Lower monthly payments
• Increased purchasing power
• More flexibility with interest-only options

Cons

• Higher interest rates
• Limited lender options
• Slower equity building
• Higher total interest costs

While they can provide payment relief, the extra interest and potentially risky features make 40-year loans a less than ideal option for most borrowers.

Where To Find 40-Year Mortgage Lenders

Since they aren’t very common, finding lenders who offer 40-year home loans can take some digging. Here are some places to look:

• Smaller Banks and Credit Unions – Community banks and credit unions sometimes have more flexibility with their loan programs. Check if any local institutions near you provide 40-year mortgages.

• Online Lenders – Online-only lenders serve borrowers nationwide and may offer more unique programs like 40-year loans. Research different companies to see their options.

• Mortgage Brokers – A good broker has relationships with multiple lenders, including some specializing in non-conforming loans. They can help you find and compare 40-year mortgage offers.

• For Loan Modifications – If seeking a modification on your existing mortgage, contact your current lender/servicer directly to discuss adjusting your loan term.

Specific lenders known to offer 40-year mortgages include:

• Carrington Mortgage Services
• Needham Bank
• Newrez

Always compare multiple lenders and loan estimates to find the best 40-year mortgage option for your situation. Consider consulting a housing counselor as well.

Alternatives to 40-Year Loans

While they provide lower payments, 40-year home loans have downsides too. Here are some alternatives to consider:

• 30-Year Fixed Mortgage – Often only slightly higher payments than a 40-year loan. Much less interest paid over time.

• ARMs – Fixed rates for 5-10 years then adjust. Can sell or refinance before higher rates kick in.

• FHA, VA and USDA Loans – Government-backed programs with low rates/costs and flexible credit requirements.

• Buying Lower Priced Home – A less expensive purchase price can make a 30-year loan affordable.

• Refinancing – If already a homeowner, refinancing your existing mortgage at a lower rate could reduce payments without extending the repayment term.

Talk to a loan officer or housing counselor to understand all your options beyond a 40-year home loan. While they can help certain borrowers, they aren’t the right solution for everyone needing payment relief or flexibility. Carefully compare the costs and benefits before committing to a mortgage you’ll be paying on for four decades.