True Story
At Starbucks today, a client asked, “what mortgage loan types are available?” Good question. A few years ago, mortgage loan types came in three basic flavors: Fixed, FHA and veteran zero down. Today, there are an ever widening array of mortgage options for Boulder home buyers.
Conventional Financing Mortgage Loan
The conventional loan is one issued by a bank or mortgage broker. This mortgage loan type can have a down payment from three percent to twenty percent. With the larger down payment, there is no mortgage insurance premium.
The Adjustable Rate Mortgage: ARM
An adjustable mortgage loan works like this – the rate starts low and then over time can increase or decrease based upon some previously determined factors. ARM mortgages are usually tied to Treasury bills or the LIBOR rate. During the Great Recession, a number of borrowers got in trouble with ARM mortgage loans. Their rate of interest increased, while home values fell. The owners were trapped between a rock and hard place. On the one hand, their mortgage cost more. On the other, they could not sell.
Still, ARM loans are not all bad. The advantage of this type of financing is it allows you to take advantage of more purchasing power. In Boulder Colorado an ARM mortgage can be advantageous. You get a lower rate for a short period of time – perhaps you are here for CU Boulder or a job with a government lab. And an adjustable rate mortgage can be a good option for properties where traditional financing is hard to come by.
I Don’t Have A Down Payment
A down payment is ideal, but not necessary to purchase a home. American veterans can take advantage of the VA loan to buy a home with no money down. The interest rate is similar to that of an FHA mortgage.
And some mortgage loan types can have the down payment gifted to you by a friend or family member.
FHA What?
FHA home mortgage loan is one where the government’s Department of Housing and Urban Development is backing the loan as opposed to a bank. FHA loans traditionally only require 3.5% for the down payment. Of course, with the lower down payment on your mortgage loan, you can expect to pay a mortgage insurance premium.
Read here about how to take advantage of a mortgage insurance premium to your advantage. And check out my previous guest blog on the 203K Home Loan – that’s the one that will cover the cost of a remodel.
Additional Resources (updated 5/19/14): comprehensive Mortgage Lender List