Home Loan Options For First Time Home Buyer In Texas
For first-time homebuyers, the myriad of financing options out there can seem overwhelming. However, taking the time to do some research on the basics of property financing could save you a substantial amount of money and time. Learning the market like where to locate the property and if it provides incentives to lenders might result in added financial perks for you. So, you need to double-check your finances to make sure that you are receiving the mortgage that best suits your requirements and who can qualify for an FHA loan.
Mortgages that are neither insured nor guaranteed by the federal government are known as conventional loans. Typically, they are fixed-rate mortgages. While they have stricter requirements for a larger down payment, lower-income to debt ratios, the potential to require private mortgage insurance, and higher credit scores make them the hardest to qualify for. Usually, conventional loans are less expensive compared to guaranteed mortgages. Know more what are the different types of home loans that would suit you.
By definition, conventional loans are either non-conforming loans or conforming loans. Typically, conforming loans adhere to the guidelines like loan limits put in place by the government-sponsored enterprises (GSEs) Freddie Mac or Fannie Mae since different lenders usually purchase, package, and sell these loans as securities in the secondary market. As of last year, a conventional mortgage’s loan limit is $484,350 overall, although it could be more for certain designated high-cost areas.
Mostly, a loan made above this particular amount is known as a jumbo loan and often carries a relatively higher interest rate. However, these loans have more risk (because they involve more money), which makes them less appealing to the secondary market. When it comes to non-conforming loans, a portfolio lender, or the lending firm underwriting the loan set their guidelines.
The Federal Housing Administration (FHA offers different mortgage loan programs. Typically, an FHA loan has relatively lower down payment requirements and is much easier to qualify for compared to a conventional loan. In general, FHA loans are better for first-time homebuyers since, apart from less stringent credit requirements and lower upfront loan costs, and you can make a low-down-payment of 3.5%. Usually, FHA loans cannot exceed the specific statutory limits named above. You should also know who can qualify for an FHA loan and know the guidelines.
VA Loans are typically guaranteed by the U.S. Department of Veterans Affairs (VA). Although the VA doesn’t make the loan itself, it guarantees mortgages made by professional lenders. With these guarantees, service people and veterans can acquire home loans that have favorable terms, often without a down payment. Mostly, VA loans are much easier to qualify for compared to conventional loans. In general, lenders use the conventional mortgage loan to limit the maximum VA loan. Ensure to ask for eligibility from the VA before applying for a loan.
Fixed Vs. Floating Rate Mortgages
Obtaining a floating-rate (or variable rate) mortgage is another important consideration. The rate doesn’t change for the entire loan period in a fixed-rate mortgage. The obvious advantage of obtaining a fixed-rate loan is that you know what exactly the monthly costs will be for the entire period of the loan. If prevailing interest rates are considerably low, you’ve got a decent rate for a substantial time. On the other hand, a floating-rate mortgage, like an adjustable-rate mortgage (ARM) or an interest-only mortgage is specifically made to help first-time homebuyers or those individuals who expect their incomes to increase significantly over the loan period.
The Bottom Line
For those who are seeking a home mortgage for their first time, it might seem challenging to sort through every financial option. You should take your time and determine how much house you can actually afford and then fund accordingly. For those who can afford to come up with a substantial amount or have sufficient income to make a low LTV, then you will have more bargaining power with the lenders, as well as the most financing options. In case you push for the largest loan, you might be issued private mortgage insurance and a relatively higher risk-adjusted rate.
Consider the pros of acquiring a more jumbo loan with the risk. Typically, interest rates float during the specified interest-only period and will usually adjust in reaction to market interest rates changes. Furthermore, weigh the risk that your disposable income won’t increase combined with the possible rise in borrowing costs. If you’re from Texas FHA loan programs are available in several banks you just need to have the best deals.
A reliable mortgage banker or mortgage broker should help in steering you through all the various options and programs, but nothing will be comparable to understanding your priorities for a mortgage loan.