The Suitable Home Loans For Texas First Time Homebuyers

Financing Basics For First Time Homebuyers In Texas Part 3

 

Fixed Vs Floating Rate Mortgages

Another consideration to make is whether to go for a fixed-rate or floating-rate (variable rate) mortgage. For fixed-rate mortgages, rates don’t change throughout the loan period. The benefit of getting this loan is that you know the monthly costs of the loan for the whole period beforehand. Whenever the prevailing interest rates are low, you’re guaranteed a good rate for a considerable duration.

first time home buyer banner for planoFloating-rate mortgages, like interest-only mortgages or adjustable-rate mortgages (ARM), are meant to assist first-time homebuyers or people who speculate an income rise along with the loan duration. Floating-rate loans normally enable one to get lower introductory rates in the initial years of the loan, enabling you to qualify for more money compared to opting for a more costly fixed-rate loan. This option can, undoubtedly, pose a risk if your income doesn’t grow at the same rate as the increase in interest rate. Another disadvantage is that the market interest rates may fluctuate: Whenever they rise drastically, the terms of your loan will shoot up with them.

How ARMs Work

The commonest types of ARMs are usually of one, five, or seven-year periods. The opening interest rate is usually fixed for a particular period of time and is then reset with time, often every month. Whenever an ARM changes, it adapts to the prevailing market rate, which is often done by adding a predetermined percentage (spread) to the usual U.S Treasury rate. Though an upper limit is imposed on the increase, and ARM adjustment may be more costly than the usual fixed-rate mortgage loan to compensate the financier for giving a lower rate in the introductory period.

Interest-only loans are a kind of ARM in which one only pays the mortgage interest and not principal in the introductory period until the loan returns to a fixed and principal-paying loan. These types of loans can be beneficial for first-time borrowers since paying interest only reduces the monthly cost of borrowing significantly and will help you qualify for a bigger loan. However, since you don’t pay the principal during the initial period, the amount due on the loan remains unchanged until you commence repaying the principal.

The Texas Mortgage Pros

The Texas Mortgage Pros team consists of mortgage professionals all over Texas. We are committed to providing our clients with the highest quality service for your mortgage needs. Combined with the lowest rate and multiple loan programs available in your area – Spring, San Antonio, Tomball, The Woodlands, Dallas, Austin, and Houston, Texas. Our outstanding mortgage professionals with years of experience will work with you one-on-one to ensure that you get the home loan that is tailored specifically to meet your situation and expectation. Whether you are purchasing your dream home, first home, refinancing an existing loan, or consolidating debt, our highly experienced team of loan officers can help you find the right loan program at the lowest rate possible.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Feel free to contact us or call us today! Click here to go to the first article in this series.

The Suitable Home Loans For Texas First Time Homebuyers

Financing Basics For First Time Homebuyers In Texas Part 2

 

Equity & Income Requirements

The financier determines the pricing of home mortgage loans in two distinct ways, with both relying on the creditworthiness of the borrower. On top of checking your FICO score from the major credit bureaus, financiers will compute the loan-to-value ratio (LTV) as well as the debt-service coverage ratio (DSCR) to determine the amount they will offer you, and the interest rate.

LTV refers to the actual or implied amount of equity available in the security being borrowed against. For home purchases, the LTV is arrived at by dividing the amount of loan by the home’s purchase price. Financiers assume that the more the amount you are paying in the form of the down payment, the less the possibility of defaulting on the loan. The higher the LTV, the bigger the risk of default, and the lenders will, therefore, charge more.

The debt service coverage ratio signifies your ability to service the mortgage. Financiers divide your net monthly income by the costs of the mortgage to determine the probability of defaulting on the mortgage. Most financiers require a DSCR greater than one. The higher the ratio, the higher the probability that you will cover the borrowing costs, which means less risk to the lender. The higher the DSCR, the higher the probability of the lender negotiating the loan rate since, even at a lower rate, the lender gets a better risk-adjusted return.

As such, you should submit any kind of qualifying income when negotiating with a mortgage financier. Often, an additional part-time job or other income-generating ventures can be the difference between qualifying and failing to qualify for a loan or achieving the best possible rate.

Private Mortgage Insurance

LTV also determines whether you will need to buy private mortgage insurance (PMI). The PMI protects the financier from default by transferring some of the loan risks to a mortgage insurer. Most financiers require PMI for loans bearing an LTV higher than 80%, implying any loan where equity ownership in the home is less than 20%. The amount to be insured, as well as the mortgage plan, will determine the mortgage insurance cost and collection plan.

The majority of mortgage insurance premiums are collected monthly alongside tax and property insurance securities. Once LTV equals or is less than 78%, PMI should be eliminated automatically. You can cancel PMI as soon as the home appreciates sufficiently in value to grant you 20% equity, and a set duration has elapsed, say two years. Some financiers, such as the FHA, will evaluate the mortgage insurance as a total sum and capitalize it into the amount of loan.

There are tactics to evade PMI payment. One should not borrow more than 80% of the property value when buying a home; another way is using home equity financing or another mortgage to make up more than 20%. The commonest program is known as an 80-10-10 mortgage. The 80 represents the LTV of the first mortgage, the first 10 represents the LTV of the second mortgage, while the third 10 stands for your equity in the homeownership.

Though the second mortgage’s rate will be higher than that of the first, on a combined basis, it should not exceed the rate of a 90% LTV loan. An 80-10-10 mortgage may be less costly than paying for PMI and also enables you to hasten the payment of the second mortgage and do away with that part of the debt fast for you to pay off your home early.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Feel free to contact us or call us today! Click here to go to the next article in this series.

The Suitable Home Loans For Texas First Time Homebuyers

Financing Basics For First Time Homebuyers In Texas Part 1

 

The numerous financing options at the disposal of First Time Homebuyers often seems overwhelming. However, researching on the various property financing basics can save you a great deal of time and money. Understanding the market of the property location and whether it provides incentives to financiers could mean a whole lot of advantages for you. Consider your finances to be sure that you are getting the most suitable mortgage.

Standard loans are uninsured mortgages or those that are not guaranteed by the federal government. They are basically fixed-rate mortgages. Their sterner requirements of making a larger down payment, having a higher credit score, lower-income to debt ratios, and often the need for private mortgage insurance render them the toughest to qualify for. However, standard mortgages are often less costly expensive than guaranteed mortgages.

Corpus Christi texas classic home bought with assistance paymentsStandard loans are classified as either confirming or non-conforming loans. The conforming loans are those that adhere to rules such as loan limits, which are set by the government-sponsored enterprises Freddie Mac or Fannie Mae since they or other financiers often buy and package such loans and sell them in the form of securities in the secondary market. The loan limit for a conventional mortgage in 2020 is $510,400 overall. Although it can go up in the case of well-known high-cost areas.

A loan in amounts higher than this is known as a jumbo loan and usually comes with a higher interest rate. The high rates are attributed to the high risk associated with these loans, since they involve huge sums of money, and this makes them less likable in the secondary market. Non-conforming loans are usually issued by portfolio lenders who determine their lending terms.

FHA Loans

The Federal Housing Administration (FHA), a portion of the U.S Department of Housing and Urban Development, provides several mortgage programs. An FHA loan requires a lower down payment and is easier to qualify for, unlike a conventional loan. FHA loans are great for First Time Homebuyers since they come with lower upfront costs and less severe credit requirements. As such, First Time Homebuyers can make down payments as low as 3.5%. FHA loans cannot go be. FHA loans cannot go beyond the statutory limits stated above.

Most importantly, all FHA borrowers ought to pay a mortgage insurance premium (MIP), which is included in their mortgage payments.

VA Loans

The U.S Department of Veterans Affairs (VA) assures VA loans. The body doesn’t offer loans itself, but rather guarantees mortgages offered by qualified financiers. Such guarantees enable veterans and service people to acquire home loans with friendly terms, normally without a down payment. Mostly, it is easier to qualify for VA loans than conventional loans. Financiers usually limit the maximum VA loan to the conventional mortgage loan limits. Before signing up for a loan, seek eligibility from the VA. If you are granted, the VA issues an eligibility certificate that you can use when applying for the loan.

On top of these types of federal loans and programs, state and local governments and agencies support assistance programs to grow investment or homeownership in specific locations.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Feel free to contact us or call us today! Click here to go to the next article in this series.