First-time home buyers in Colorado often find the home and mortgage search process overwhelming and confusing. However, there are programs targeted to first-timers that make the process simpler and more cost effective.
Keeping Your Mortgage Payments Affordable
Many first-time home buyers are attracted to the lower start rates offered by adjustable rate mortgages (ARMs), but the best choice for the long-term (5 years or longer) is a fixed rate loan. The only time a first-timer should opt for an ARM is when their first home is only a temporary expression of the so-called “American Dream.”
Just be careful. Interest rates are adjustable up or down based on a predetermined 3rd party index and margin (the adjustable percentage above the independent index) and a stated time period (usually 6 months, 1,3, or 5 years). If you can’t resist the temptation of getting the lower start rate of an ARM, be sure the rate can’t change for the length of time you’re sure you will own the home.
Remember, you have no control over the US economy; inflated interest rates sometimes can happen quickly, often at the whim of the Federal Reserve, which controls the US money supply and bank discount interest rates (the rates banks charge each other), which affects the prime rate and mortgage rates, at a minimum. If you’re unsure of how long you will keep your first home, a fixed rate mortgage should top your list of financing options. Fixed rate loans of 15 or 30 years transfer the financial risk from you to the lender.
The Federal Housing Administration (FHA) makes no direct loans to homeowners, but does guarantee a large portion of the loans approved mortgage lenders make. In the post-great recession economy, FHA financing has become the significant program for first-time home buyers, particularly for those who have “spotty” credit.
These guarantees encourages lenders hungry for secured loans to widen their normal acceptance standards. Borrowers can qualify for FHA loans with a minimum of 3.5 percent downpayment. View more information.
While not unique, active military personnel, veterans, and surviving spouses love this program offered by the US Department of Veterans Affairs (VA). What’s not to love, as these programs often offer no down payment or the mortgage insurance fees that come with FHA loans. But, similar to other government programs, approvals and closings are built for accurate qualifications, not speed. While historically, it took “forever” to close VA loans, approvals are coming faster in the 21st century.
Who knew? The US Department of Agriculture (USDA) also has mortgage lending program attractive to first-time home buyers. Why?
- You don’t need to live on a farm.
- They offer up to 100 percent financing.
- They offer lender guarantees, similar to FHA.
Be aware there are income maximums that vary by region of the US. Wealthy first-time buyers need not apply. But, middle class home buyers should learn about this program.
State-Sponsored First-Time Homebuyer Programs
Some states offer special loans for first-time homebuyers. Those that do typically offer some subsidized interest and homebuyer counseling to help uncomplicate the home buying process. First-time home buyers should check with their local state mortgage agency to learn if they offer a special loan programs for their local first-timers.
View a complete list of Colorado First-Time Homebuyer assistance programs by clicking here.