Familiarizing yourself with the kinds of mortgage loans that are available to you is a crucial prerequisite to applying for one. By arming yourself with some basic info, you can make a more enlightened decision about the kind of mortgage loan most suitable to your present and long term goals.
Your loan’s interest rate remains constant over a predetermined amount of time, whether 15 or 30 years. A fixed-rate mortgage loan reduces surprises and guess work on your part, making it easier for you to draft and stick to an overall budget. With a fixed-rate mortgage loan, you can refinance if interest rates go down. Fixed-rate mortgage loans account for upwards of 75% of all home loans.
Federal Housing Authority (FHA) Loan
The FHA 203(b) is a federally insured fixed-rate loan. Its terms are identical to those mentioned above, but the loan also enables you to finance up to 97 percent of your home loan and keep down payments and closing costs low. Credit qualifying standards are usually a little less stringent.
VA (Veteran Affairs) Loan
Guaranteed by the United States Department of Veteran Affairs, a VA loan is a 15- or 30-year fixed loan geared specifically toward eligible veterans, active duty personnel, and surviving spouses. Rates are competitive and entail low to no down payment options.
Also called ARM, an adjustable-rate mortgage has a lower initial rate of interest than a fixed-rate. Though the rate changes every year on the anniversary of the loan, an ARM allows you to qualify for a higher loan amount. This means you can potentially buy a more valuable home in a preferred location, and you can maintain a lower mortgage payment down the line by refinancing.
A balloon mortgage is similar to a fixed-rate, but you make a balloon payment at the very end of the loan’s life. You lock in a low initial payment during which time you pay only the interest. This loan is ideal if you intend to sell your house before the balloon payment due date.
With an interest-only loan, such as the very common five-year fixed 30-year loan, you have a low monthly payment during the initial period. The low payment is typically all interest but occasionally includes some principal. The balance of the loan is due when this period ends, giving the choice of refinancing or paying the loan in full.
If you’re ready to buy your next home in Colorado Springs and want to learn more about how much home you can afford and what type of mortgage loan is right for you, contact Park Avenue Properties of Colorado Springs today!