How to choose the right mortgage for your needs
Are you in the process of buying a house in Texas? A mortgage is often a necessary step so that you can buy your dream home. But you’ll want to make sure that you take on a mortgage that matches your income and meets your needs. Read on to determine how to choose the right mortgage.
Know what you can afford
Do the math to see if the house on your wishlist is within your financial reach. As long as you’ve got a good credit score (620 for conventional loans) and a steady job, mortgage lenders will usually allow you to borrow a sum of money between four or five times your income. They may lend you less if they see that you’re still paying off a student loan, or if you have a lot of credit card debt.
You also need to determine how much of your income you can set aside to pay your mortgage. Ideally, this figure shouldn’t be more than 30% of your net income. You’ll still need the rest of your budget for your other expenses.
Determine a down payment amount
It isn’t enough to be eligible for a decent mortgage loan. Lenders will also want to see that you have enough money for the down payment and closing costs. While the convention of setting aside at least 20% of the home’s list price eased up prior to the pandemic, it pays to stick to the old rule of thumb given the current seller’s market.
You can use a down payment calculator to see how your advance affects your monthly mortgage payments. Remember, the bigger your down payment, the less you’ll have to borrow.
Think about how long you’d like to pay your mortgage
How long are you willing to commit to paying off your mortgage? If 30 years seems like an excessively long period of time, look for loans that last for only 10 or 15 years. Some lenders might even allow you to set a specific time period between 10 or 30 years. Check your budget to see you can make bigger payments over a shorter period of time. This will reduce the amount you spend for interest and let you negotiate a better mortgage rate.
Pick the right mortgage
There are many types of mortgages, depending on your circumstances. If you’re planning on moving to a rural or suburban area, look to USDA loans. If you have a lower credit score, you might benefit from an FHA loan. Active-duty service members and military veterans may qualify for VA loans. If you want to buy a house that costs more than what most loan guidelines allow, you might want to check out jumbo loans. Think about your goals and background and do a little research to determine which type of mortgage is best for you.
Consider different mortgage interest rates
You have a couple of different options when it comes to mortgage interest rates. You can choose a single long-term interest rate or opt for an adjustable-rate mortgage, or ARM, which fluctuates along with the market. A fixed-rate mortgage might have a higher rate at the start compared to an ARM, but keep in mind that an ARM rate will change once a year after an initial term of three to ten years.
Think about how long you want to live in your new house or hold your mortgage. If you’re planning on moving, paying off, or refinancing your mortgage before the ARM’s guaranteed rate ends, then this may be a good option. But if you’re planning to live in your house for a long time, you may want to choose a fixed-rate loan, since an ARM’s interest rates could increase with time.
Find the right real estate team to find the house you need
If you’re thinking of buying a house in Texas, Berkshire Hathaway HomeServices (BHHS) Caliber Realty is the team that will speed up the process for you. We are an award-winning full-service firm based in the Brazos Valley, the true heart of Texas.
At Berkshire Hathaway HomeServices Caliber Realty, we remain at the top of their game by combining industry experience with professional know-how and innovation. Our agents specialize in different facets of real estate including sales, leasing and property management, HOA management, and take pride in bringing their expertise to the table.