Home Loan Basics

Buying a house is the quintessential American dream. Thanks to flexible home loan options, it’s an achievable goal for many families. Securing a mortgage and closing on a home are complicated processes. Prospective buyers should work with a bank representative who will guide them through each step.

Fixed-Rate Mortgages

One decision you’ll have to make is whether to pursue a fixed-rate or adjustable-rate mortgage. These are the two basic types of home loans. A fixed-rate home loan offers a stabilized, predictable monthly payment. The interest rate will remain constant throughout the life of the loan.

Adjustable-Rate Mortgages

The interest rate of an adjustable-rate mortgage is subject to changes over time. Typically, buyers will start with a low interest rate for the first few years of the loan. After that, the interest rate can be adjusted up or down, based on market conditions.

Interest Rates

Interest rates are determined based on a number of factors. These include the current market conditions, and the home buyer’s credit history and credit score. Additionally, a 30-year home mortgage will typically have a higher interest rate than a 15-year mortgage.

Down Payments

The down payment is the money the buyer initially puts down toward the purchase price of the home. The home loan makes up the difference between the down payment and the total purchase price. It’s ideal to put down 20% of the home’s value. However, depending on the buyer’s credit history and employment, banks may be willing to offer a home loan to buyers who offer less than a 20% down payment.

Private Mortgage Insurance (PMI)

Home buyers who offer a down payment of less than 20% of the home’s value may be required to purchase private mortgage insurance. PMI protects the mortgage lender in the event that the buyer defaults on the home loan. PMI reimburses the lender if a foreclosure sale of the home will not completely repay the debt.

Mountain Valley Bank offers flexible home loan options. These include construction loans, mortgages for first-time buyers, VA loans, and home equity loans. You can call their branch in Steamboat Springs, CO at (970) 870-6550.