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.
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!