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Is Getting Conventional Loans in Texas A Right Choice for You?

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.

 

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.

 

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.

 

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.

 

     For a traditional loan, most lenders need a credit score of at least 620.

 

     Debt-to-income ratio (DTI): For most conventional loans, a DTI of 50% or less is required.

 

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.

 

Joan Galardo

author

Residential Commercial Mortgage Loan Originator at Clear Lending.

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