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Getting a Mortgage

What You Need to Know about Getting a Mortgage

Not everyone has the great fortune to be able to buy a home for cash. Enter home loans. Here's what you need to know about getting a mortgage.

You’ve got Choices

The search for a new home can be an exciting time for new home buyers. However, unless you’ve stockpiled a LOT of cash with which to buy, you’re almost certainly going to need a home loan (mortgage) to purchase your new home. Fortunately, most homebuyers have several different options including some specifically designed to help first-time purchasers who may need assistance.

Understanding these mortgage options, such as FHA and USDA loans, can help you discover the best loan product for your situation. And once you’re crystal clear on what type of loan you want, it makes shopping for the best available terms so much easier. Here’s what you need to know about getting a mortgage.

Min. D.P.LTVPMISeller ConcessionsOccupancy
Conventional5%95% Yes1 3% w/ <10% down
6% w/ >10% down
FHA3.5%96.5% Yes2 6%O.O. Only
VA0%100% N/A No cap on closing costs
4% towards pre-paids
O.O. Only
1 On down payments under 20%. 2 Always, for 11 years or life of loan.

Conventional Loans

Home Loans

Buyers with strong credit and a sizable down payment can obtain a conventional mortgage. The federal government does not insure this type of loan, which features a fixed interest rate over 30 years and stands as the most popular choice among homebuyers. To avoid paying private mortgage insurance (PMI), borrowers typically need to provide a minimum down payment of 20% of the purchase price.

Conventional loans come in two types. A conforming conventional loan adheres to federal housing finance standards, encompassing factors such as credit, debt payments, and loan size. On the other hand, a nonconforming conventional loan does not meet these federal standards, often due to its large amount or being extended to buyers with subpar credit or bankruptcy histories. Additionally, Texas homeowners must be mindful of conventional loan limits.

As of 2023, the conventional loan limits are as follows:

Single Family Home: $726,200
Two Family Home: $929,850
Three Family Home: $1,123,900
Four Family Home: $1,396,800

In 2023, a conventional mortgage offers greater flexibility, allowing buyers to use it for the purchase of vacation homes or investment properties. Some buyers can also make down payments as low as 3%, provided they meet minimum credit score thresholds.

FHA Loans

FHA Loan

Loans backed by the Federal Housing Administration (FHA) assist borrowers who lack a substantial down payment or possess less-than-perfect credit. Borrowers who cannot qualify for a conventional loan often find an FHA mortgage to be their best option.

FHA loans come with higher upfront and monthly fees, including a monthly mortgage insurance premium if the down payment is less than 10%. While the credit requirements for FHA loans are not as stringent as those for conventional loans, the monthly PMI charges can only be eliminated through loan refinancing. To determine if this loan type suits your needs, consult with a qualified and experience loan officer.

In the higher-interest climate of 2023, FHA loans maintain their requirement of a minimum credit score of 580 to be eligible for 96.5% financing with a 3.5% down payment. However, recent updates now enable borrowers with a minimum credit score of 500 to qualify for financing with a 10% down payment in certain cases.

VA Loans

The Veterans Administration backs flexible, low-interest loans for members of the U.S. military, veterans, and their spouses. A VA home mortgage also eliminates the need for a down payment or mortgage insurance, with the additional benefit of capped closing costs that may be covered by the seller. Nonetheless, these loans often incorporate a funding fee, representing a percentage of the loan amount allocated for the home loan program.

The regulations permit the inclusion of this fee and closing costs into most VA loans, aiming to reduce upfront costs for the purchase. In certain cases, mortgage lenders may extend greater flexibility with credit scores for VA loans.

Fixed rate vs. variable rate mortgages

A fixed-rate mortgage maintains a constant interest rate throughout the loan’s duration, with available terms typically spanning 15, 20, or 30 years. Individuals intending to stay in their homes long-term and seeking a steady monthly payment throughout the loan’s life find this loan type ideal. Furthermore, fixed-rate loans facilitate straightforward budgeting for monthly mortgage payments, although they generally feature higher interest rates compared to adjustable mortgages.

In contrast, Adjustable-Rate Mortgages (ARMs) exhibit interest rates that can fluctuate as the market changes. As interest rates rise more broadly, an adjustable-rate loan’s interest can also increase. These loans best suit borrowers with shorter-term plans for home ownership who prefer lower initial monthly payments. For instance, a seven-year ARM maintains stable rates for the initial seven years, after which they can adjust either up or down. Some ARMs reset annually, while others do so every six months.

So who do we trust?

Always, always, always listen to your real estate professional and get their input on who THEY trust to provide mortgage loans. Large corporate lenders (like the ones you see on TV or major banks) are almost always a nightmare. Local lenders with boots on the ground and in-house underwriting departments provide better customer service, quicker turn times, better rates, and because they have to maintain reputations locally – they’re always much easier to reach.

That being said – here’s our suggestions for local lenders. Please tell them we sent you.

Brad Levinton, Thrive Mortgage – (281) 249-5951
Allison Celeste, Movement Mortgage – (832) 545-9654
Alicia Mahaffey, AMP Lending – (985) 400-9759

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