Historically low interest rates are encouraging first-time buyers, move-up buyers and buyers looking for a second home to realize their dreams in Texas. Mortgage rates are only half of the homebuying equation, however. To get the best rates and the most home for your money, you need to pick the right mortgage for you. While this is a discussion best had with your lender, here is a quick overview to get the conversation started during your home search.
The most popular home loan is available on 10- 15- 20- 30- and 40-year terms, but 15 and 30 are the most common. Some things to keep in mind:
Fifteen-year mortgages come with higher monthly payments but usually have lower interest rates and have less total interest compared to longer term loans. However, at the end of 15 years, you will own your home as long as you don’t refinance.
Thirty-year mortgages offer lower monthly payments than 15-year mortgages but at higher interest rates. You also will pay more in interest then you would with a 15-year loan.
An adjustable-rate mortgage is a home loan with an initial rate that’s fixed for a period of time, then adjusts periodically. This is a good loan for people who don’t plan on staying in their new home for long or who don’t expect interest rates to change much.
The pro on this loan is that you have the option during the first five or 10 years to pay only the interest portion instead of the full payment. Afterward, the rest of the mortgage is paid off in full like a conventional mortgage. However, borrowers will have to demonstrate to lenders substantial assets or a proven ability to pay.
An FHA mortgage is an excellent option for first-time homebuyers and those with low FICO scores. The mortgage is guaranteed by the Federal Housing Administration. They allow down payments as low as 3.5 percent. Mortgage insurance is built-in to protect against the possibility of not being able to repay the loan.
These loans are backed by the Department of Veterans Affairs and are available to military service members and veterans. No down payment is required. Borrowers pay an upfront VA funding fee.
Jumbo refers to a mortgage that’s too big for the federal government to purchase or guarantee. Currently, the limit is about $700,000. This means that the borrower wouldn’t get the lowest interest rates available on smaller loans.
On a balloon mortgage, you pay interest only for a certain period of time and then the total principal amount is due after this initial period.
The Bottom Line
Ready to get started? Use this handy mortgage calculator to estimate your monthly payment.
Not sure which mortgage term is right for you? Compare them here.
No matter which mortgage you choose, be sure to get pre-approved before you go house hunting. Pre-approval shows that you are serious about buying a home and have the funds available to do so. After that, it’s time to select your new home in Dellrose. Which one will you choose?
Disclaimer: Always consult a mortgage professional for the information that’s right for you.