The Mortgage Experts at America's Mortgage
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DIFFERENT TYPES OF LOANS

One of the most important things to know when you shop for a mortgage is that not every lender can sell every type of loan.  Mortgage brokers and bankers are sales people, and generally speaking, they are not going to tell you about a loan that they cannot sell themselves.  So make sure you use a lender who can sell all the different types of loans - conventional, FHA, VA, USDA, CHFA, all the down payment assistance loans, etc.  We sell every type of loan.

Another important thing to know when shopping for a mortgage is that the underwriting guidelines (the rules the lenders use to determine whether you get the loan or not) change all the time.  A loan that was available a month ago may no longer exist, and if it still is available, it may have very different guidelines.  You need to work with a lender who is knowledgeable about all the underwriting guidelines.  We are widely regarded as the leading source of mortgage and credit information in the Metro-Denver area.

Listed below are some of the more common types of loans.  A good lender will discuss all of these with you before recommending a particular loan program.

Fixed-Rate Mortgages

This is the most common type of loan.  The payments remain the same until the loan is paid off.  There are no surprises with fixed-rate loans.  They are the most popular and the least risky type of loan you can get.

The most common term (amount of time before the loan is paid off) for a fixed-rate mortgage is 30 years, but they are available in 5-year increments, from 5 years all the way up to 30 years.  The longer the term, the lower the payment will be.

Adjustable Rate Mortgages (ARMs)

ARMs have a fixed interest rate for a certain amount of time, and then the interest rate adjusts every 6 or 12 months after the fixed period ends.  The interest rate can go up or down, but they are designed to always go up.  Don't listen to a mortgage broker who tells you the rate is going to go down when it adjusts.  It can, but it probably won't - they are designed to go up so the lender can get a higher interest rate.

ARMs can have a fixed rate for many different periods.  Some are only fixed for a few months, while others are fixed for 10 years before the interest rate changes.  The most common fixed period is 5 years. 

Once the rate changes, the new rate is based on two things - an index (which changes all the time) and a margin (which remains the same for the entire term of the loan).  When the loan adjusts, the lender adds the index and the margin together, and the sum of those two numbers is your new interest rate.  If you don't know the index and the margin, you can't possibly tell if you're getting a good loan, so always ask what the index and the margin are.

ARMs have interest rate "caps", which are the maximum amount that the interest rate can change.  There are three caps for every ARM.  The first cap is how much the rate can change the first time it changes.  The second cap is the amount it can change every time after that.  The third cap is the maximum amount it can change over the life of the loan.  Some ARMs have small caps (good for you) and some have very high caps (bad for you).  Make sure you know what the caps are before you buy an ARM.

Sometimes (but not always), ARMs will have lower interest rates than fixed-rate mortgages.  If you are considering an ARM, here are the things you need to know:
  • How much lower is the initial interest rate for the ARM versus a fixed-rate mortgage?
  • Which index is being used?
  • What is the margin?
  • Once the fixed period of the ARM is over, how often does the interest rate change?
  • What are the caps?
    • How much can the interest rate change the first time it changes?
    • How much can it change every time after that?
    • How much can it change over the life of the loan?
FHA Mortgages

FHA mortgages are loans that are insured by the federal government.  You pay the mortgage insurance directly to the government, rather than paying it to a private mortgage insurance company. 

FHA loans are extremely popular right now for a number of reasons:
  • The down payment is only 3.5% (it is usually a minimum of 5% with a non-government loan).
  • You can get the down payment as a gift from a relative.
  • You can also get the down payment as a loan from a relative.
  • FHA rates are low, and are the same regardless of your credit score.
  • The seller can pay up to 6% of the sales price to the buyer to cover the closing costs.  Most other loans are capped at 3%.

FHA loans are NOT just for first-time home buyers.  Many people don't know that. 

A lender must be approved by the government to sell FHA loans.  If someone ever tries to talk you out of considering an FHA loan, it probably means they are not approved to sell them.  We are approved to sell all types of loans.

VA Mortgages

VA loans are only available to veterans, or active members of the military, National Guard, or Reserves.  VA loans have no down payment requirement, meaning you can get 100% financing.  They also do not have any mortgage insurance requirement, so the payments are almost always less than any other type of loan.

VA loans are a benefit for having served your country.  If you qualify for one, by all means, get one.  NEVER let someone talk you out of getting a VA loan.  If they try to talk you out of it, they are probably not approved to sell VA loans.  We are approved to sell all types of loans.

USDA Mortgages

USDA loans are 100% financing loans for rural properties.  The rates are low and there is no mortgage insurance.  Do not assume that the house you are buying is not eligible because it seems to you like it's not in a rural enough area.  We can tell you in minutes if the property qualifies.  All we need is the address.

Down Payment Assistance Programs

Down payment assistance programs are usually small loans for about 3% - 6% of the sales price.  They are meant for people who cannot afford to pay for the down payment or the closing costs by themselves. 

There are usually income restrictions, meaning you need to earn less than a certain amount.

Many of these programs are only for first-time home buyers (people who have not owned a house in the previous 3 years).

Down payment assistance programs are great.  They should always be considered.  Don't make the mistake of assuming you will not qualify for one.

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