Purchasing your dream house is not easy. If you are an average American without millions or more in their bank account or pocket, then you cannot just walk in and say you will buy this house. 

Instead, you will need to apply for a mortgage. And you’ll need to qualify for that mortgage loan to be able to purchase a house. Then you’ll have to pay your lender every month until the end of your mortgage contract. 

But in some cases, a borrower may not use the entire amount of loan that they qualify for. Instead, some may continue to draw funds from the loan after moving into the property they bought. 

This is called an open-end mortgage. In today’s article, we will talk about open-end mortgages and more.

What Is An Open-End Mortgage?

An open-end mortgage is a type of mortgage loan that does not get all of the money at once. Instead, you use the money as you need it, which is why it is called an open-end mortgage.

In contrast to traditional mortgage loans, this type of loan allows a person who wants to buy a home to do so without having to use all of the loans they qualify for. They can then keep taking money from the loan after they move into the property.

It is a type of mortgage that allows the borrower to increase the principal amount of the mortgage at a later date. Open-end mortgages enable the borrower to return to the lender and obtain additional funds. 

Most of the time, the additional amount that can be borrowed is limited. Bear in mind that your borrowing limit is determined by the value of your home and the amount of your first mortgage.

What Is The Difference Between Open-End And Traditional Mortgages?

Many people confuse an open-end mortgage with that of traditional mortgage loans such as house loans offered by FHA and VA. But what exactly are the differences between the two?

One of the few areas where an open-end mortgage and a traditional mortgage loan are comparable is the application process. Similar to that of a traditional mortgage loan, an open-end mortgage loan will check your income, assets, employment, and credit score as qualifying factors. 

The difference in obtaining an open-end mortgage loan is that not all lenders have the same eligibility requirements. While you may have known in advance what it would take to qualify for an FHA or conventional mortgage, applying for an open-end loan is likely to provide you with additional unexpected aspects.

According to connectrates.com, you must expect these requirements: 

  • A credit score of at least 660, but in some cases, it can be 680 or 700
  • A loan-value ratio of 80 percent or less
  • A DTI of 43 percent or less

An open-end mortgage is similar to that of a delayed draw term loan. It also has characteristics that are similar to those of revolving credit. 

Open-end mortgages are distinct, as they are a loan agreement that is secured against a real estate property, with the funds from the loan agreement going towards investment in property.

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