What First Time Home Buyers Need To Know About Mortgages in Houston
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It’s exciting when you decide you are ready to buy your first home. This is a significant milestone and one of the biggest purchases you will ever make in your entire life. At the same time, first-time home buyers in Houston also frequently feel apprehensive about the purchase.
Taking out a mortgage means borrowing a huge sum of money. You may be concerned over whether you can afford it or about meeting the sometimes exacting qualification requirements.
We are top-rated Houston mortgage lenders who are excited about helping you finance the purchase of your first home. We know that taking out a loan of this magnitude may be a new experience for you, and we want you to understand your options with the following guide.
First Time Home Buyers in Houston May Not Need a Significant Down Payment
A down payment of 20%, or one-fifth of the total purchase price, is often recommended as appropriate for first-time home buyers. Even with Houston home prices being below the national average, this can be an unattainable goal. The good news is, in most cases, a 20% down payment is not necessary to secure a mortgage. Depending on the loan you choose, you may only need to make a down payment of up to 3.5%. With some mortgage products, there is no down payment required at all.
While this makes mortgages much more attainable for people of modest means, there is a tradeoff involved. First-time home buyers Houston who make a low down payment typically have to pay mortgage insurance as part of their monthly mortgage payment. This is separate from the homeowner's
policy that you have to obtain to secure your mortgage, protecting you from damage to your property. You must factor both the mortgage insurance and the homeowner's insurance premium into your monthly mortgage payment when determining whether you can afford it.
A Mortgage Can Be Used for More Than Buying Your First Home In Houston
You do not necessarily have to buy an existing home to get a mortgage. For example, there are also loan products available to fund the purchase of land and the construction of your own custom home.
You May Qualify for First Time Home Buyer Benefits Even if You Have Owned a Home Before
The U.S. Department of Housing and Urban Development sets several conditions for first-time buyer status. If you meet any of the requirements, you qualify for benefits even if you have owned a home before. For example, if you have owned a home before but your spouse has not, or you have only owned a home with a spouse from whom you are now divorced. You may also qualify for first-time home buyer advantages if you have not owned a principal residence for the past three years.
Our goal at Rock Mortgage is to make the process of purchasing a home as stress-free as possible through constant communication and a customer-first approach. It is our privilege to help you finance the purchase of your first home. Contact us to start your application.
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Houston First Time Home Buyers May Have Different Mortgage Options
There are different types of mortgage loan products available, and depending on your background and your status as a first-time home buyer in Houston, you may qualify for more than one.
Loans by the Federal Housing Administration are available to first-time home buyers and those who may not qualify for a conventional loan due to low income or a low credit score. This type of loan typically requires that you make a down payment of at least 3.5% of the purchase cost, and you must pay mortgage insurance to the FHA unless your down payment exceeds 20%.
Current military members and veterans may qualify for a VA loan. These loans usually require no down payment because the Department of Veterans Affairs backs them. Instead of mortgage insurance, you pay a VA guarantee. An upfront funding fee also applies.
This is the traditional type of mortgage available to those who meet eligibility requirements. With mortgage insurance, your down payment for a conventional loan may be as little as 6%.
USDA Home Loans
The USDA program for home loans is unique as well. Should the home you are buying be in a more disadvantaged area, such as a rural town or suburb, you may be able to get a USDA loan. The United States Department of Agriculture guarantees these loans, so traditional mortgage lenders know that someone will cover the loan should you wind up unable to pay for the property. If the property meets the conditions and meets the requirements, this property may require no money down and have lower payments than other loan options.
Adjustable-Rate Home Loans
Another option that can be suitable for some first-time homebuyers is called an adjustable-rate home loan. This is a loan where the interest rate varies and can change throughout the course of the loan. Your mortgage will usually have some form of a fixed rate for a set period at the beginning of the loan. Once that time is up, your interest rate will fluctuate depending on the market. That means your payment can go up or down depending on how the market is doing.
Fixed-Rate Home Loans
The alternative to the adjustable-rate home loan is the fixed-rate home loan. This is a simpler type of loan where your mortgage lender determines what interest rate it will charge for the full life of the loan. This is what you pay until the full mortgage is paid off. If the market goes up, you do not see an increase in a mortgage payment. However, if the market goes down, you also do not get a decrease in payment.
First Time Home Buyers Houston May Qualify for More Than They Can Afford
Your eligibility for a mortgage is based on factors such as your debt-to-income ratio, payment history, and your credit score. It is common for first-time home buyers in Houston to qualify for up to 43% of your debt to income. In other words, when you add up all the bills that you pay to your creditors per month, including your mortgage bill, the total may be up to 43% of your gross monthly income.
Be careful, though. Just because you can afford to take out a large mortgage doesn’t mean that you should. The 43% figure only accounts for your debts. There are other monthly expenses that you are responsible for:
- Medical or veterinary care for your household
- Tax obligations
- Retirement savings
All of these factors must be taken into consideration when determining an affordable mortgage amount. You can get into serious financial trouble later if you automatically take out the largest mortgage for which you qualify without a careful evaluation of your finances first.
Rock Mortgage Can Help You Determine What Types of Mortgage Loans You Need
When you are ready to start the process of getting your first home, reach out to us here at Rock Mortgage. We can go through the types of mortgage loans available to you and explain what makes them unique. Contact us now so you can get into your first home as soon as possible.