Whether you're a first-time homebuyer or a seasoned real estate investor, if you're planning on buying a home you've probably already started thinking about its financing. The most common way to pay for a home is with a mortgage. Generally, a mortgage is a loan for the amount of money your home is worth. There are tons of different options for mortgages. Which mortgage is right for you depends on your financial history, current income, credit score, and more.
Let's dive in to the many different mortgage options available to Dallas area homebuyers. If you have any questions about buying a home in the greater Dallas area, please don't hesitate to give us a call at 214-680-4550.
What's in a Mortgage, Anyway?
Like we said earlier, a mortgage is a loan for the amount of money your home is worth. How much you end up paying every month depends on what kind of mortgage you get. It depends on whether the mortgage is conventional fixed-rate, adjustable-rate, or a VA loan. One good way to begin choosing your mortgage is asking yourself whether or not you're comfortable choosing a loan with an adjustable rate.
Basically, with an adjustable rate your payments may vary over time. If you opt for the more traditional fixed-rate mortgage, you can expect your payments to be the same every single month.
Common Mortgage Options
- Value can't be greater than a pre-set limit
- Amounts are set by the median prices of different cities within a particular area
- Only 5% down is required (sometimes 3%)
- Steep mortgage insurance premium and other upfront costs are required
- Commonly called 5/25s and 7/23's
- Convertible converts the loan to a fixed loan for the remaining 25 or 23 years
- Nonconvertible - converts the loan to an ARM
- Both are 30-year loans
- Fixed interest rates for the first 5 or 7 years; then change to convertible or nonconvertible loans
- Both can be amortized over 30 years
- You pay half the amount of a monthly payment
- Paid 26 times a year (not once a month)
- Cuts down on the amount of interest over the life of the loan
How Much Can I Afford?
A fantastic way to determine how much you can afford to spend on a home is by getting pre-approved for a mortgage. During the pre-approval process, you'll sit down with a local lender to review your finances. The lender will review your annual income, credit score, savings, and any debts or liabilities you may currently have. Then, after reviewing your information, the bank will let you know exactly how much they are willing to lend you.
Boom, your budget is set. We highly recommend going through the pre-approval process because:
It lets you know exactly how much financing the bank is willing to loan you
You'll know what your potential maximum mortgage payment will be
You'll know how much your down payment will be
It makes you a more competitive buyer to sellers