When you find the home that's just right for you -- you need a home loan that's just right too. That means great rates, an experienced mortgage consultant to help you through the application process and quick responses to all your requests.
Call us today to learn more about how a Citywide Banks mortgage consultant can make the home buying process a whole lot easier for you.
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Toni Brock
Vice President
Citywide Banks Residential Mortgage Loans
303-365-4052
Email Toni at
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FIXED RATE MORTGAGE LOANS
The interest rate may be your main consideration if you expect to stay in your house for a long time. With a fixed-rate mortgage, you can be sure that your interest rate will stay the same for the entire life of your loan. Fixed-rate mortgages are available in a variety of repayment terms, with 15, 20, and 30 years the most common.
30-Year Fixed-Rate Mortgage Loan
The easiest fixed-rate loan to qualify for, the 30-year mortgage, gives you an excellent opportunity to keep your mortgage payments reasonable by making monthly payments over a long period of time. This mortgage loan may be ideal if you plan to remain in your home for years and wish to keep your housing expense low and use any extra cash for other purposes. This loan also provides maximum interest deduction for tax purposes.
Consult a tax advisor regarding deductibility of interest.
20-Year Fixed-Rate Mortgage Loan
The 20-year mortgage gives you the opportunity to own your home free of debt much sooner than the 30-year mortgage loan. It often offers a lower interest rate compared to a 30-year loan. This mortgage amortizes principal and interest over a 20-year period, 10 years less than the traditional 30-year mortgage. This may save you a considerable amount of total interest paid over the life of the loan.
15-Year Fixed-Rate Mortgage Loan
The 15-year mortgage offers a lower interest rate than a 30-year or 20-year mortgage. Such a shorter-term mortgage will save you a significant amount of interest over the life of the loan. By paying off the mortgage more quickly, you also build up equity in your home sooner. A 15-year mortgage can let you own your home clear of debt earlier, which may be important if you are approaching retirement or have other large expenses to cover such as financing your children's education. However, the monthly payments you make on a 15-year mortgage will be higher than those you would make on a 30-year or a 20-year mortgage loan for the same total mortgage amount.
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ADJUSTABLE-RATE MORTGAGE LOANS
With an adjustable-rate mortgage (ARM), the interest rate you pay is adjusted from time to time to keep it in line with changing market rates. This means that when interest rates go up, your monthly mortgage payments may go up as well.
On the other hand, when interest rates go down, your monthly mortgage payments may go down.
ARMs are attractive because they typically offer an initial interest rate that is lower than fixed-rate mortgages. Since the monthly payments on an ARM start out lower than those of a fixed-rate mortgage of the same amount, you can typically qualify for a larger loan.
The chief drawback is that your monthly payments may increase when interest rates go up. You may want to consider an ARM if you plan to move in a few years and therefore are not concerned about possible interest rate increases or you need a lower initial rate to afford to buy the home you want. How much your payments can increase will depend on the terms of your mortgage.
Before applying for an ARM, be sure you know how high your monthly payments could go -- the so-called "worst-case scenario." An ARM has two "caps" or limits on how large an interest rate increase is permitted: One cap sets the most that your interest rate can go up during each adjustment period and the other cap sets the maximum total amount of all interest adjustments over the life of the loan.
As an example, a typical ARM that adjusts annually may cap the yearly interest rate increases at 2 percent, meaning that the adjusted interest rate can never be more than 2 percent higher than the previous year. And such an ARM may have a lifetime rate cap of 6 percent, meaning that the highest adjusted interest rate you can ever be required to pay is no more than 6 percent above the original rate.
Treasury-Indexed ARMs
These ARMs are indexed to the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of six months, one year, or three years. Depending on which three of these security index schedules you choose, the interest rate on your ARM will adjust once every six months, once each year, or once every three years. Per-adjustment caps and lifetime rate caps vary, depending on the type of Treasury-indexed ARM you choose. Some of these ARMs offer an option to convert to a fixed-rate mortgage at specified interest adjustment dates.
Cost of Funds-Indexed ARMs
Cost of Funds-indexed (COFi) ARMs are indexed to the actual costs that a particular group of institutions pays to borrow money. The most popular index of this type is the COFi for the 11th Federal Home Loan Bank District. COFi ARMs can adjust every month, every six months, or every year and the per-adjustment caps and lifetime rate caps vary, depending on the type of COFi ARM you choose. Some of these ARMs offer an option to convert to a fixed-rate mortgage at specified interest adjustment dates.
LIBOR-Based ARMs
The London Interbank Offered Rate (LIBOR) is the interest rate at which international banks lend and borrow funds in the London interbank market. You may choose an ARM that adjusts to the LIBOR every six months. This six-month LIBOR ARM typically has a per - adjustment period cap of 1 percent and is offered with either a 5 percent or a 6 percent lifetime rate cap. It can offer the option to convert to a fixed-rate mortgage.
Initial Fixed-Period ARMs
You may wish to look into a special type of ARM that doesn't adjust your interest rate until several years after you take out the loan. These loans offer you several years of fixed payments before there is an interest rate change. You can get a three, five, seven, or ten-year fixed-period ARM. This means your interest rate would be the same for the first three, five, seven, or ten years and then, at the end of your chosen fixed-rate period, your interest rate would adjust every year. This type of ARM protects you against rapid interest rate increases in the early years of your loan.
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BALLOON LOANS
Balloon loans offer lower interest rates for shorter term financing, usually five, seven, or ten years. At the end of this term, they require refinancing or paying off the outstanding balance with a lump-sum payment. Balloon mortgages may be suitable if you plan to sell or refinance your home within a few years and want a fixed, low monthly payment. The advantage they offer is an interest rate that is lower than that of a fully amortizing fixed-rate mortgage. For example, your initial interest rate may be 7.5 percent, and you would pay that rate for the first five, seven, or ten years (depending on the term of your balloon loan). Then, your entire outstanding loan balance would be due to the lender or you might have to pay a fee to refinance your loan at the prevailing interest rate. However, ask about all the conditions for a refinance option at the end of the balloon term. With some balloon mortgages, the lender doesn't guarantee to extend the loan past the balloon date. If you don't feel you will be able to meet all the refinance conditions or think the balloon term may be up before you are ready to move, this type of loan may not be appropriate for you.
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GOVERNMENT LOANS
The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA), are two agencies that offer government-insured loans. Both require that the properties being purchased meet certain minimum standards.
FHA Loans
With FHA insurance, you can purchase a home with a very low down payment (from 3 percent to 5 percent of the FHA appraisal value or the purchase price, whichever is lower). FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a given region.
VA Loans
The VA guarantee allows qualified veterans to buy a house with no down payment. Moreover, the qualification guidelines for VA loans are more flexible than those for either FHA or conventional loans. If you are a qualified veteran, this can be an attractive mortgage program. To determine whether you are eligible, check with your nearest VA regional office.
State and Local Loan Programs
A number of states sponsor programs to help first-time home buyers qualify for mortgages. Local housing agencies also offer attractive loan terms to eligible home buyers in some areas. These programs typically offer very attractive loan terms (low down payment or low interest rate) to first-time home buyers who meet specified income guidelines. Some state and local programs may also offer down payment and closing cost assistance. (Check with your state housing authority. The phone numbers usually can be found in the government "blue pages" of the phone book or you can search the HomePath.com state housing agency list for the office nearest you.)
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AFFORDABLE HOUSING LOANS
For households of modest means, the greatest barriers to homeownership are coming up with the down payment and closing costs and managing housing expenses that often are higher than those of the qualifying guidelines allowed in traditional mortgage lending. Fannie Mae, in cooperation with housing providers, offers low- and moderate-income households mortgage loan options that help overcome common barriers to homeownership. These mortgage loans offer flexible underwriting ratios, allowing you to use more of your monthly income toward housing costs than other mortgage loans allow. Also, these loans require less cash at closing and for a down payment, making it easier to get into a home sooner.
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