Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Types of Mortgage Loans in Texas for Homebuyers
When you start thinking about purchasing a new home, you also have to look at what financial options you may have for a smooth purchase.
Let’s learn about the seven most common types of mortgage loans in Texas available for potential homebuyers.
1. Conventional or Fixed Rate Mortgage:
A conventional or fixed-rate mortgage is one of the most common types of mortgage loans in Texas.
It’s a standard loan program where the interest rate remains fixed for the entire tenure of the loan hence getting a fixed amount every month.
The tenure care is given as a choice to borrowers that could be anywhere from 5 years to 40 years.
15 years and 30 years are the most common tenures used. 30 years conventional mortgage has maximum market share according to industry standards.
A conventional loan is one that is not insured or guaranteed by any federal government. Conventional loans have a loan limit set by the Federal Housing Finance Agency.
The limit may vary based on the area or the state you are planning to purchase the property.
Any loan which crosses this limit falls into a different type of mortgage loan known as Jumbo Loans.
2. Adjustable-Rate Mortgage:
The Adjustable Rate Mortgage or ARM is a program where the interest rate and the payments are fixed for the specific tenure of the loan. E.g. In a 5/1 ARM for the first five years.
the loan will act as a conventional loan which means the interest rate and monthly payments are fixed, and after that, it would vary depending on the market index.
A few examples for ARM are 3/1, 5/1, and 7/1. An ARM is one of the least opted types of mortgage loans in Texas.
3. FHA Loan:
The Federal Housing Administration (FHA) mortgage. This loan program is managed by the Department of Housing and Urban Development (HUD).
It is a department of the federal government. FHA loans are not only available for first-time buyers but for any borrowers.
The borrowers can get this loan from most lenders. The advantage of this program is that it allows a borrower to make a deficient down payment of the purchase price.
FHA loan is one of the most famous types of mortgage loans in Texas.
The major disadvantage of this program is it includes mortgage insurance, which ends up in higher monthly payments.
4. VA Loan:
The Veterans Affairs loan. The U.S. Department of Veterans Affairs guarantees this mortgage. This type of loan is offered to American veterans who have served or are serving in the U.S. military and their families.
Just like any other mortgage loan, this is also one of the popular types of mortgage loans in Texas. This loan gives the borrower the benefit of purchasing a property without any down payment.
The U.S. Department of V.A. reimburses any default from the borrower on this loan to the lender.
5. Balloon Mortgage:
A balloon mortgage is one of the rare types of mortgage loans in Texas. The borrowers mostly go for refinancing the loan again once they reach maturity.
Primarily the balloon mortgage is used to get commercial real estate.
A balloon payment mortgage may have a fixed or floating interest rate. For example, if the borrower took a balloon mortgage for 7 years, for the first seven years, the payments would be amortized according to 30 years.
And at the end of the 7th year, the borrower needs to pay the remaining balance of the loan or go for refinancing and select from a wide range of loan types.
6. Jumbo Loan:
If a borrower is looking to buy a luxury residence e.g., Multi-family homes or Villas. Or merely a house in an area where property values are higher than usual; at that time, jumbo loan mortgages are the best and only option.
The Jumbo loans are loans that have limits higher than conventional mortgages. The Federal Housing Finance Agency sets these limits. The limits of the loan may vary from area to area and state to state.
Usually, the interest rate on a jumbo loan is higher compared to a conventional loan.
Lenders have a considerable risk in a jumbo mortgage because if this loan is defaulted and goes into foreclosure, it is difficult to sell such properties quickly at their full price to recover the loss.
7. USDA Loan:
This loan is guaranteed by the U.S. Department of Agriculture (USDA). Yes, you have read it right. Now USDA also provides mortgages.
To get qualified borrower needs to meet specific income guidelines and even the property in question should be in an area listed in the eligible rural areas defined by USDA.
If all criteria are met, the borrower qualifies for a zero-down payment USDA loan.
Since Texas is one of the top 10 states in agricultural production, this is one of the most beneficial types of mortgage loans in Texas.
I heard that my friend plans to purchase a house where he could retire with his wife in the future. I never knew that a mortgage would usually last for 15 years. He should probably look around for a financial institution that can give him the best option for the project.
It’s nice that you talked about how you have to look at what financial options you may have for a smooth purchase when you start thinking about purchasing a new home. My family wants to move, so we are planning to buy a new house using a loan. I read in a magazine before that there are also manufactured home loans now, so we should probably consider that too.