What is an essential requirement for borrowers under interest-only loans?

The requirement for borrowers under interest-only loans to qualify for the total repayment amount, which includes both the principal and interest, is essential due to the nature of how these loans are structured. Interest-only loans allow borrowers to pay only the interest on the loan for a specified period, after which they must start paying back the principal.

Lenders typically need to ensure that borrowers can afford higher payments that will occur once the interest-only period ends and the loan shifts to amortization, where both principal and interest are paid. This requirement is largely to mitigate the risk of default, as borrowers might face a significant jump in their monthly payment obligations once the interest-only period is over. Therefore, understanding the total repayment obligation is crucial for both the lender and borrower to ensure financial suitability and avoid future payment shocks.

The other options present requirements that are not universally necessary for interest-only loans. For instance, not all interest-only borrowers are required to have a credit score above 700, provide income verification under every circumstance, or be first-time home buyers. Each of these factors can vary significantly based on the lender's criteria and the borrower's personal financial situation.