July 21, 2023

What Type of Home Loan is Right for Me? Exploring Mortgage Loans

With our warm weather, freedom from state income tax, and thriving and diverse metro areas, it’s no wonder people are choosing to make the move to Texas. With so many people coming into the state, demand for new homes remains high.

When the search for your dream home is complete, you will have yet another decision to make: which home loan is right for you? The process of finding a mortgage can be tricky because there are so many types of home loans. Different types serve various purposes and are designed to meet different needs. Below, we’ll review the home loan types available and help you determine which to explore first with your mortgage lender.

Comparing Home Loan Types

Let’s explore the different types of home loans in Texas and find out which one might be the best fit for your unique situation.

Conventional Mortgage

First up, we have the conventional mortgage. This home loan type requires a decent credit score – typically 620 or higher. You’ll also need a down payment, usually at least 3%. But the more you can put down, the better your terms might be.

Pros and cons: Conventional mortgages often offer competitive interest rates and may have lower closing costs. However, if your down payment is less than 20%, you’ll likely need to pay for private mortgage insurance, which will increase your monthly payment.

Who is this home loan type best for? If you have a good credit score and can afford a decent down payment, a conventional mortgage could be a great option.

FHA Home Loans

FHA loans are backed by the Federal Housing Administration. They’re designed to help lower-income individuals and families buy homes.

Pros and cons: FHA loans have lower credit score requirements and allow for lower down payments (as low as 3.5%). On the downside, these loans require upfront and ongoing mortgage insurance premiums.

Who is this home loan type best for? If your credit score isn’t top-notch or you have a smaller down payment, an FHA loan could be right up your alley.

VA Loans

VA loans are specifically for veterans, active-duty military personnel, and their families. These loans are backed by the Department of Veterans Affairs.

Pros and cons: VA loans don’t require a down payment or mortgage insurance, and they often have competitive interest rates. However, they do require a funding fee unless the borrower is exempt due to a service-related disability. This fee varies based on whether this is their first VA loan and the amount of down payment (if any). Borrowers can roll the funding fee into the mortgage or pay it up front.

Who is this home loan type best for? If you’re eligible, a VA loan could be an excellent choice with plenty of benefits.

USDA Mortgage

USDA mortgages are designed to help low- to moderate-income individuals and families buy homes in rural areas. These loans are backed by the United States Department of Agriculture.

Pros and cons: USDA loans offer low interest rates and don’t require a down payment. However, they do come with upfront and annual fees. Also, there are restrictions on location and income.

Who is this home loan type best for? If you’re considering a home in a rural area and meet the income requirements, a USDA mortgage might be a perfect match.

Jumbo Loans

Jumbo loans are for those big-ticket homes. They exceed the conforming loan limits set by Fannie Mae and Freddie Mac, allowing buyers access to higher-priced homes.

Pros and cons: Jumbo loans allow you to borrow more money to purchase a higher-priced home. However, they often require a higher credit score, larger down payment, and can have higher interest rates.

Who is this home loan type best for? If you’re eyeing a home with a larger price tag (or are simply moving into a pricier neighborhood) and you have excellent credit, a jumbo loan might be the way to go.

Adjustable-Rate Mortgages

Finally, we have adjustable-rate mortgages (ARMs). True to its name, an ARM is adjustable, meaning your interest rate can change over time.

Pros and cons: ARMs typically offer introductory interest rates that are often lower than that of a conventional loan. After the introductory period ends, the rate adjusts (on a set cadence, e.g., once per year) depending on market rates. Some borrowers start with an ARM and then refinance to a conventional loan before the introductory period ends.

Who is this home loan type best for? If you’re planning on a shorter stay in your home, or you expect your income to increase in the future, an ARM could be a good option.

Deciding Which Type of Home Loan is Right for You

So, which home loan type is right for you? The answer depends on a lot of factors, including your credit score, how much you have for a down payment, your income, where you want to live, and much more.

It’s a personal decision, and what works for one person may not work for another, so navigate accordingly. At the end of the day, the “right” type of home loan is simply the one that fits your needs and helps you achieve your homeownership goals.

Frequently Asked Questions About Home Loans

What type of home loans are there?

There are several types of home loans available, each with its own benefits and considerations. These include:

● Conventional Mortgages
● Federal Housing Administration (FHA) Loans
● Veterans Affairs (VA) Loans
● United States Department of Agriculture (USDA) Mortgages
● Jumbo Loans
● Adjustable-Rate Mortgages (ARMs)

Each of these loan types serves different needs and situations, so it’s important to understand how they work to figure out which one might be the best fit for you.

What type of mortgage is best right now?

The “best” type of mortgage depends on your individual circumstances, like your financial situation, how long you plan to stay in the home, and the current market conditions. For instance, fixed-rate mortgages can be a good choice if you plan on staying in the home for a long time and want predictable payments, while adjustable-rate mortgages might be appealing if you plan to move in a few years or think interest rates will decrease.

What is the best home loan for a first-time buyer?

First-time homebuyers have some fantastic options! FHA loans are often a great choice because they allow for lower credit scores and smaller down payments than many other loans. There are also specific first-time homebuyer programs, like the USDA loan program and various state programs, that can provide benefits like down payment assistance.

What type of mortgage does not require a down payment?

VA loans, which are available to veterans, active-duty service members, and some surviving spouses, often do not require a down payment. Similarly, USDA loans, which are designed for rural and suburban homebuyers, also often allow for 0% down. Keep in mind that while these options can make homeownership more immediately accessible, they might come with additional requirements or fees, so it’s important to research and discuss these options with a mortgage expert to understand the full picture.

Find the Right Home Loan to Buy Your Dream Home at Pecan Square

No matter what your homeownership goals are, when it comes to the home itself, look no further than Pecan Square by Hillwood, winner of the Dallas Builders Association’s McSAM Award for master-planned community of the year in 2023 and 2021. Featuring a vibrant, enriching lifestyle program, award-winning amenities, and impeccably designed homes by DFW’s top new home builders, Pecan Square truly has something to offer everyone.

To learn more, stop by The Greeting House for a community tour! Our builders have available inventory, and many are offering incentives. Browse for your home online then visit the builder’s models to learn more about special offers.