What do the abbreviations ARM, FHA, and RHS have in common? No, they are not the latest in social media speak or code for text messaging. These actually all have to do with mortgages and home loans, and are important terms to know when you are ready to purchase Fort Collins CO real estate.
Unless you are receiving a home as a gift or you are paying for it in full with cash, you will need to secure a mortgage. Different mortgage loans are available to you as the borrower based on several factors, which are discussed below.
Types of mortgages
#1 Fixed rate: Mortgages with the same interest rate for the life of the repayment term.
#2 Adjustable-rate (ARM): Also known as a variable-rate mortgage, the interest rate can be changed by the lender after a certain amount of time.
#3 VA Loan: Offered to military service members, including veterans, active duty, and surviving spouses by the Department of Veteran Affairs, guaranteed by the government with no down payment required.
#4 FHA Loan: Available to all types of borrowers; the Federal Housing Administration program is overseen by the Department of HUD (Housing and Urban Authority).
#5 Reverse Mortgage: Offers seniors the opportunity to convert their home equity to cash.
#6 RHS Loan: USDA offered program for borrowers in rural areas, managed by the Rural Housing Service and available to those with low or modest income.
#7 Balloon Mortgage: Short-term, where borrowers pay on a regular basis for a certain amount of time, after which the whole loan balance is due.
Which Type of Mortgage Do I Need?
Mortgages are as varied as the homebuyers themselves. Several factors will need to be taken into consideration, including income, credit history, and what type of buyer you are (first-time, seasoned, etc.).
First-time homebuyer: FHA loans tend to have lower restrictions and low interest rates
Empty Nester: A reverse mortgage could help older adults with little savings, as there is no mortgage payment.
Do-it-yourselfer: FHA 203(k) allows qualified borrowers purchase fixer-uppers, using an FHA-approved lender.
Inconsistent income: An interest only mortgage, in which the buyer pays only the interest and the loan is attached to a fixed-rate and ARM.
What Type of Lenders Give Mortgages?
• Mortgage Broker: Companies which process loans in order to broker them to lending institutions. A mortgage broker matches the buyer with the right loan.
• Direct Mortgage Lender: Works directly with homebuyers, originates the loan, and may also sell it to someone else.
• Banks: Underwrite, approve, and close home loans for buyers.
The right home mortgage for you will depend on your current financial situation, your past credit history, and why type of home you plan on purchasing. For early 2015, Bankrate.com is forecasting more home loans being granted, home prices to increase at a reasonable rate, and low-interest mortgages available for first-time homebuyers. Who knows? Maybe this will be the year you make one of the biggest decisions of your adult life: buying a home.