Mortgages aren't a cheerful topic to discuss for
most individuals trying to buy a home. They'd rather consider what color to
paint the walls or what furnishings to purchase for each area of their new
house. After all, that's a lot more enjoyable than doing the math.
However, deciding how you'll pay for your new
house is an important part of the buying process. You'll also need to think
about acquiring a loan to pay for that buy. When reviewing your loan
alternatives, you may be unsure if federally backed loans or conventional loans in Texas are best for you. Here’s what you need to know about choosing one over
the other is outlined below.
Down Payment Policy
If you're a first-time homeowner, your down
payment on a conventional loan may be as little as 3%. When compared to
alternative mortgages that need a 10% to 20% down payment, this is a big
benefit. A conventional loan's down payment required varies depending on your
financial condition and if this is your first property.
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If you're not a first-time homebuyer and your
income is less than 80% of the median in your region, your down payment will
most likely be 5%. If you're purchasing a second property, this rate may be as
high as 10%. Those who choose an adjustable-rate mortgage over a fixed-rate
mortgage will generally pay a rate of 5%. A conventional mortgage can be used
to get a big loan, however, the down payment needed may be as high as 20% or
greater.
Loan Amount
For a conforming loan, you must keep within
Freddie Mac and Fannie Mae's lending restrictions. This figure fluctuates year
to year, but it is $548,250 in 2021, up from $510,400 in 2020. If your loan
isn't within this range, it's considered non-conforming and will be classified
as a jumbo loan. If your county is classified as a "high-cost region,"
the loan limit is increased. In certain cases, the conforming loan maximum in
2021 may be as high as $822,375.
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PMI
You'll almost certainly have to pay private
mortgage insurance as part of your mortgage payment if you put less than 20%
down on a property with a traditional loan. Because there isn't much skin in
the game with a minimal down payment, it's the lender's way of protecting
itself in the event of a default.
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PMI can be incorporated into your monthly
mortgage payment or paid in one lump sum. For every $100,000 financed, you'll
pay between $40 and $80 each month, depending on your credit score and down
payment amount. The good news is that after you've built up a 22 percent equity
holding in your house, PMI will automatically cease. Because PMI on FHA loans
is required for the life of the loan, this is a direct benefit of conventional
loans.
Other Prerequisites
When deciding whether or not a traditional loan
is suitable for you, there are two extra considerations to consider.
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For a traditional loan, most
lenders need a credit score of at least 620.
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Debt-to-income ratio (DTI): For
most conventional loans, a DTI of 50% or less is required.
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Individuals who have filed for bankruptcy or
experienced a foreclosure during the last seven years may not be eligible for a
conventional loan. Never fear if you don't satisfy the conditions for a
traditional loan. Find APM Loan Advisors who have access to hundreds of loan
options and are always available to discuss your specific financial
circumstances.
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