One of the biggest dreams of many people is to be able to afford a house. A house can be considered an asset and an investment because when the time comes that you need extra cash, you can resell it anytime. However, the process of obtaining a house is not cheap. There are those tedious paper works you have to process and the hefty amount of down payment you need to pay.
Buying a house in Texas can be a good investment. Texas is a large state in the United States and there are a lot of good locations to choose from. Texas is a good place to live in- with all the green, luscious meadows, fresh air, and healthy environment.
How to buy a house
Not all people have the sufficient ability to buy a house in cash. Mostly, people who are buying houses in Texas usually consider taking out a loan. Why? Because lenders let you pay your loan in installments, with interest, of course. In buying a house, a potential homeowner has two options.
- FHA Loan
An FHA loan is a mortgage that is insured by the federal government and serviced by a third-party lender. Basically, this means that the government will pay the lender if you end up not being able to pay- but you will still face foreclosure if you default on your loan. This type of loan gives the lenders a little peace of mind since they are assured of payments by the government no matter what happens. For this reason, lenders accept lower credit scores for FHA loans than in conventional loans. FHA loans require only a credit score of 500 while conventional loans usually require a credit rating of 600 and above.
FHA loans also require a mortgage insurance premium or MIP, which is a kind of fee attached to the mortgage that you pay for the entire length of the loan. Your MIP varies between 0.45 and 1.05 percent of your mortgage value- depending on how much you borrowed. However, you can get rid of this MIP in two ways. The first one is refinancing the loan to a conventional loan. The second method is putting 10 percent down at the beginning, which allows you to ditch MIP after 11 years of payments. You also need to pay a one-time insurance payment of 1.75% of the loan at closing. Due to the added fees, FHA loans can end up being more expensive than conventional loans. However, FHA loans have lower rates than conventional loans.
- Conventional loan
A conventional loan is also called a conforming loan. Conventional loans are mortgages not backed by the federal government. Therefore, lenders will try to reduce the risk of the borrower not being able to pay. That means this kind of loan has slightly higher interest rates and requires more strict approval than FHA loans. Though some lenders will accept as little as 3 percent down- anything under 20 percent will require you to pay private mortgage insurance (PMI). This monthly fee is required until you reach 78 percent equity in your home, but it usually doesn’t fall off your monthly payment until you hit 80 percent.
How do you choose?
Choosing what type of loan to take depends on you. Buying a house in Texas is also like buying a house anywhere. You need to weigh in the advantages and disadvantages of the different types of loans to see where you can save money. For homeowners who don’t have the money upfront or great credit scores, FHA loans are a good option because they accept the smallest down payment possible. If you live in a high cost of living city where real estate goes quickly, you might decide it’s better to buy now with an FHA loan instead of waiting until you have enough saved for a conventional loan. However, if you do not like the added costs of an FHA loan, and you have enough savings, you can always choose the conventional type of loan.
In choosing for the type of loan, you can always ask for advice to your mortgage officer or real estate consultant. They can present to you the pros and cons of each kind of loan and may help you decide what loan to take for your Texas dream home.