One of the first steps you’ll need to take when looking at homes in Colorado Springs is to find financing that’s right for you. As you’ll see, not every Springs home loan program is the same, so you’ll want to look into several of the most common programs and talk to a reputable lender to see which program fits your budget and lifestyle.

Traditional Mortgage Loans

Conventional Loans: One of the most common loan programs, these loans are guaranteed by Fannie Mae and Freddie Mac, who set forth loan guidelines for lenders to follow. These loans offer very good interest rates with various loan terms available (30, 20, 15, and 10-year options) and typically require at least 5-20% down-payments to qualify. This program is normally best for clients with excellent credit and a larger down-payment.

FHA Loans: The most popular loan program for first-time buyers and those who need a lower down-payment option. FHA loans require 3.5% down-payment, and are more flexible on credit scores. The full 3.5% down-payment can also come in the form of a gift from a family member. FHA loans require a 1% funding fee (basically pre-paid mortgage insurance) which is rolled into the loan balance and a monthly mortgage insurance fee as part of the monthly payment.

VA Loans: A great loan program for active duty military and veterans of the Armed Forces. This is a very popular loan program especially in our area due to the large military community in Colorado Springs. VA loans are virtually the only loan program still offering 100% financing to eligible military personnel and veterans. VA also charges a funding fee, which is rolled into the loan, and the amounts charged vary from 2.15% of the loan amount for first-time VA users up to 3.3% or higher for repeat users or members of the National Guard. VA waives all funding fee requirements for veterans with a 10% or higher VA disability rating, which is an added bonus for many vets. VA currently offers some of the lowest rates available with no monthly mortgage insurance, making this an appealing option for eligible clients.

Bond/Down-payment assistance programs: El Paso County occasionally offers a local bond program to offer down-payment assistance to first-time buyers at very low rates (recently rates under 4% on 30-year fixed loans). This program normally comes available once/year and is available for a very limited time as the funds in the program are typically used up very quickly.

Additionally, the Colorado Housing and Finance Authority (CHFA) offers a great low down-payment option for both first-time and repeat buyers with as little as $1000 required for down-payment and assistance in the form of a small 2nd mortgage to cover the remainder of the required 3.5% down for a normal FHA loan.

Specialty Programs:

USDA Loans- a program available with up to 100% financing and low rates for buyers purchasing in rural areas. Parts of Eastern El Paso county and most of the counties further east qualify for this program, as does Teller County, which includes Woodland Park.

FHA 203K loans- a rehabilitation loan program that allows buyers to borrow up to $35K in additional funds to renovate a home they purchase. There are 2 options available, a “Streamline 203K” that allows for less paperwork (and less money) and a full 203K option that works almost like a construction loan.

There are very few lenders in CO that offer all of these programs, and we are pleased to be one of those lenders. Please call or e-mail with any questions on the programs listed here.

Loan Terms Available: Most of the loan programs mentioned above are commonly offered in 30-year or 15-year options. Some loan programs also offer 25, 25, or 10-year options as well. 30-year loans are by far the most commonly-used loan term because they offer a good mix of low rates and low payments since the payments are spread out over a longer period of time. 15-year options offer some of the lowest rates available (normally about .75%-1% lower than a 30-year loan), but due to the shorter re-payment schedule, payments normally run about one third higher per month than a 30-year option.

Fixed Rate vs. ARM Loans: The vast majority of loan offerings today are fixed-rate loans with no pre-payment penalties for paying off the loan balance early. However, ARM (adjustable rate mortgage) loans are still available, and in some cases can be a good option for a client. ARM’s allow for artificially low starting interest rates for a fixed period of time (normally 3, 5, 7, or 10 years). Once the fixed period has passed, the loan will then adjust at fixed intervals and by fixed amounts. ARM loans commonly adjust once/year and depending on the program can adjust 2% or more every adjustment period. So, this program is normally only recommended for clients planning to own the home for a shorter term who want the lowest possible rate during that time.

Interest-Only Option: An interest-only loan is one that allows a person to pay only the interest on the balance of the loan for a predetermined amount of time. This results in lower monthly payments initially for a fixed period of time (normally 5-10 years). However, once the determined amount of time expires, you must pay both interest and the principle of the loan back. Since you will be paying larger amounts each month to pay the loan back in a shorter amount of time, the increase in the amount of your monthly payments will be significant, and this option is not commonly utilized.

Other Loan Factors: This is the “tip of the iceberg” on lending options. There are additional specialty loan products and many other factors to consider when selecting a loan program and a lending partner for your home financing. We look forward to discussing these additional factors with you!

Colorado Springs real estate sales are currently picking back up and it is a great time for home buyers to start looking for their first or next property. The home buying process can feel overwhelming for some, but don’t worry; we’ve summed up the process here to let you know what steps to take from finding home loans and getting proper financing, to signing on the dotted line and owning your new home.

Apply for a Home Loan (Pre-Approval). Of course, before you begin the process of looking at properties, you’ll need to know what your budget is and what loan you’ll be approved for. You’ll likely have a fairly good idea of how much you will be approved for, but it’s best not to settle on a budget until you’ve heard back from your lender. Remember that oftentimes, you’ll be approved for a larger loan than you can comfortably afford. Your monthly mortgage payment should be no more than one third of your monthly income.
When you apply for a loan, you should have the following paperwork and documentation ready to present to the loan officer:

• W-2s for the last two years from all jobs
• Your most recent pay stubs from the last 30 days
• Two months’ worth of your bank statements for all accounts
• Copies of all of the pages and schedules of your two most recent Federal tax returns
• The most recent statements (all pages) for investment and retirement accounts
• Name and contact information for your home owner’s insurance agent
• Copies of your driver’s licenses
• Verification of any other income or assets- alimony, child support, retirement plans, etc
• Deposit for appraisal

Once you’ve been pre-approved for a home loan, then you can decide what monthly payments you feel comfortable making on the loan. Based on this, you can determine the price range of properties that you should consider.

Find an Agent. Once you’ve been pre-approved for a loan, the next step in the home buying process is finding an agent that you trust to help you find your dream home. You can ask friends and family for referrals to the agents they used or you can search for a reputable agent online. It’s often a good idea to interview 2-3 agents to ensure that you find someone you “click” with before you start looking at properties. Once you’ve settled on an agent, you’ll normally sign a contract agreeing to engage that agent’s services as your “buyer’s agent”.

Start Looking at Homes. Some people find this part of the process to be the most fun. You can do some research for homes on the market in your area or you can let your Colorado Springs real estate agent look up some prospective properties for you. We suggest that you make a list of “needs” and a list of “wants” to help narrow your home search, and you may also want to narrow your search to certain neighborhoods as well.

Realtors have access to the main MLS (Multiple Listing Service) database that consumers can’t typically access on their own, and they should be knowledgeable about home values in the Springs. You may find the home of dreams on the first visit or the seventh. Have a little patience and don’t settle immediately.  When you find the right home, you’ll know.

Put an Offer on the Home. When it finally comes time to make an offer on a home, you and your real estate agent will work closely to come up with a price that sounds fair. Typically, they will suggest offering slightly less than the listing price of the home and will give you reasons for this that may include research on the value of the home, the value of similar homes in the area and more. If/when your offer is accepted by the sellers, you’ll also make an earnest money deposit to show the seller that you are serious about buying their property. The deposit amount is determined by the seller and normally runs about 1% of the purchase price of the home.

Negotiate the contract.  There may be a few back and forth offers and counter offers, but when you and the seller finally agree on a selling price, then you’ll begin the closing process. This normally takes 30-60 days, depending on a variety of factors. Don’t forget that there are closing costs associated with the final sale of the home as well as the initial down payment on your home.  Closing costs are typically 2-3% of the loan amount borrowed from the lender.  In the current market it is fairly common to ask the seller of the home to cover some or all of the closing costs.  Down-payment requirements range from 0%-20% depending on the loan program you’ve selected- see our blog on loan programs for more info.

Get a Home Inspection. It’s important to have a professional check out the home you’re looking into buying before you submit an offer on the property. They will go through the home with a fine tooth comb and identify any issues so that you won’t be surprised with any repairs down the road. You can also use the inspection report to ask the sellers to either make the repairs before you agree to buy the home or to take money off the selling price of the home. An inspection will cost anywhere from $300 to $500, so be prepared to pay this fee on at least one home you are interested in.  This is one of very few fees that is typically paid prior to your closing on the sale of the home.

Have the home appraised.  A home appraisal differs from an inspection, because the key focus of an appraisal is to determine/confirm the fair market value of the home.  Some loan programs require appraisals that also examine some of the property condition factors of the home, but the main value of the home is determined by comparing your property to other similar homes in the area that have sold in the past 6 months.  This protects you and the lender and helps insure that you are not over-paying for the home.  In the rare instance that an appraisal comes back lower than the agreed upon sales price, the buyer has the right to cancel the contract, to pay cash for the difference in value, or to ask the seller to lower the purchase price to match the appraised value.

Final Loan Approval.  Once you are under contract to buy a home and while the home inspection and appraisal are being completed you will meet with your lender to sign your loan application and to turn in any remaining financial documentation required.  You will also lock in your interest rate once you are under contract, but not before since mortgage rate locks are tied to a specific property.  The lender will then review all financial info, your application paperwork, and the property appraisal (lenders don’t typically require a copy of your home inspection) to determine that you qualify for the loan.  In some cases additional documentation may be required to clarify questions on your loan approval.

Close on your new home!  Your real estate closing will normally take place at a local title company whose job entails handling the closing documents and all closing funds between buyer and seller.  This process normally takes about one hour and entails lots of paperwork, which the title closer, your agent, and in some cases your lender will review with you.  At this point your new loan is funded and you now own a home!