If you have been paying attention to real estate in Boulder County lately, you have likely noticed that home prices have risen to all time high levels. With each passing year, this has made it harder and harder to afford a home, especially for first-time homebuyers. But with so many mortgages available to home shoppers, a traditional, 30-year fixed-rate mortgage may not be the only option to explore.
An increasing number of homebuyers are applying for specialty mortgage, which may allow them to pursue non-traditional ways to secure and pay down a home mortgage. However, (and this is a big however), it is important to be aware of the risks, before you choose one of these mortgages and assume it is right for you.
According to ColoProperty.com, “Specialty mortgages often begin with a low introductory interest rate or payment plan - a 'teaser' - but the monthly mortgage payments are likely to increase a lot in the future. Some are 'low documentation' mortgages that come with easier standards for qualifying, but also higher interest rates or higher fees.”
Some examples of specialty mortgages are:
- Interest-Only Mortgages: monthly mortgage payment only covers the interest owed on the loan for the first 5 to 10 years of the loan, and you pay nothing to reduce the "principal".
- Negative Amortization Mortgages: monthly payments are less than the amount of interest you owe on the loan. The unpaid interest gets added to the loan's principal amount.
- Option Payment ARM Mortgages: an option to make different types of monthly payments such as making a minimum payment that is less than the amount needed to cover the interest and increases the total amount of your loan.
- 40-Year Mortgages: an option to pay off your loan over 40 years, instead of the usual 30 years, which will help you qualify to buy a home, but you pay off the balance of your loan much more slowly and pay much more interest.
All of these options are far from traditional, and do require a clear understanding of the risks associated with each of them. Each home purchase scenario is unique and there may be special circumstances that warrant the use of a special mortgage. Whether you pursue a traditional or specialty mortgage, talk to a lender you trust who will be upfront about the kind of loan that fits your budget and home purchasing plans.
If you have been following LRA on social media, you know we always do our best to put our clients first and ensure our home buyers and sellers understand all their options. At Louisville Realty Associates, we have the experience, energy and depth of knowledge to help you list your home for the best price. You can reach us anytime at firstname.lastname@example.org.
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