By: Haley Garcia Group | Published 02/03/2023
Types of Mortgage Loans
How Do I Choose a Mortgage Loan?
Mortgages can be a lot to wrap your head around. Here’s a quick overview of what to know before choosing a mortgage and finding a lender to help finance your home.
Types of Mortgage Loans
Here are the four most common mortgage loans for buyers:
The conventional loan is a mortgage loan that’s issued by a private lender such as a bank or credit union. Conventional loans are not backed, or insured, by the government. Conventional loans can be “conforming” or non-conforming.” Most conventional loans are conforming which means that they follow guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
On average, you’ll need a credit score of at least 620 to qualify for a conventional loan. Additionally, most conventional loan programs offer low down payment options. First-time home buyers who meet specific requirements are able to make down payments as low as 3%. If you’re a repeat buyer, you’ll need to make at least a 10% down payment. Private mortgage insurance (PMI) is required for borrowers who put down less than 20% and this is usually rolled into your monthly mortgage payment.
Federal Housing Administration (FHA) loans are government-backed loans with less strict down payment and credit score requirements. FHA loans may be a good fit for borrowers with lower credit scores who don’t qualify for a conventional loan. For instance, a borrower with a credit score of 500 could qualify for an FHA loan with a down payment as low as 10%.
Issued by the U.S. Department of Veterans Affairs, VA loans are specifically for military members, veterans, spouses and beneficiaries. VA loans do not require credit score qualifications, down payments or private mortgage insurance.
Backed by the U.S. Department of Agriculture, USDA loans are well suited for lower income buyers who want to buy property in a rural area. USDA loans do not require a down payment and it is possible to qualify for one with a lower credit score.
Understanding Mortgage Interest Rates
In terms of interest rates, there are two different categories:
Fixed-Rate Mortgage (FRM)
The interest rate is fixed when you take out the mortgage and will not change over the 30-year term of the loan. This loan option is well suited for buyers who plan to stay for a while in their forever home and desire more predictable monthly payments.
Adjustable-Rate Mortgage (ARM)
The interest rate may go up or down over the 30-year term of the loan, depending on the condition of the housing market. ARM loans generally start out at a lower introductory rate than FRM loans and can go up over time. It’s important to know how much and how frequently the rate can adjust to plan for future monthly payments.
Keep in mind that the type of loan you choose will depend on your needs over time. Current mortgage rates fluctuate from day to day, so be sure to speak with your lender about how to lock in the best one for your home loan.
As a rule of thumb, a higher credit score will always help you to qualify for lower interest rates. However, don’t be discouraged if your credit score has taken a hit throughout the years. Your lender will discuss different loan options for you that may offer competitive interest rates. Where there’s a will, there’s a way!
How to Choose a Mortgage Lender
It’s important to weigh your options when choosing a mortgage lender to help finance your home. We always recommend meeting with at least two lenders to discuss your options and find the best loan for your needs. We have long-standing relationships with some of the best mortgage lenders in the area and are more than happy to connect you with loan originators that we know and trust. Ready to get started?
First-Time Home Buyer Programs in Texas
We know buying a house for the first time can cause a tremendous amount of anxiety. During your initial consultation with the Haley Garcia Group, we’ll talk through your budget so you know the true cost of home ownership before you begin the process.
Home Buyer Assistance Programs & Grants in Texas
Whether you’re a first-time home buyer or a repeat buyer who needs assistance with the down payment and closing costs, these Lone Star State loan programs are here to lend a helping hand
Home Ownership Assistance: Texas
Texas State Affordable Housing Corporation
TDHCA My First Texas Home Loan
TSAHC Home Sweet Texas Home Loan Program
TSAHC Homes For Texas Heroes Program
My Choice Texas Home
Texas Mortgage Credit Certificate Program