For most people, a home is the biggest financial investment they’ll ever make. From borrowing money to paying directly with cash, it’s important to be familiar with your financing options so you can make the appropriate choice for your situation. If you decide to apply for home loans in San Antonio, here’s a guide to help you understand them better.
What is a Home Loan?
A home loan is a type of loan specifically intended for buying a residential property, regardless of whether it’s a house, apartment, or any other private dwelling.
People often use the words “home loan” and “mortgage” interchangeably because of how closely related these terms are. However, a mortgage refers to a specific loan agreement where the property you buy becomes collateral. If you can’t follow through with the payments, the property can get foreclosed and the lender will have the right to sell it to someone else.
How Do Home Loans Work?
A home loan allows you to buy a house and pay the price in smaller increments later on. Depending on the type of loan, you might have to make a downpayment. This is a percentage of the house’s price that you agree to pay out of your pocket. The lender then lets you borrow the principal, which is usually the home price minus the down payment.
You have a time limit or “term’ for repaying the home loan. A typical term can be 10 to 30 years, though it also depends on your agreement with the lender. How much money you pay back each time depends on how frequent the payment is and the interest rate.
Here’s an example:
If you want to buy a $500,000 home and make a down payment of $50,000, your principal would be $450,000. If you then agree to a term of 30 years, a three percent interest rate, and monthly payments, you’d pay $1,897 each month towards the principal and interest on the loan.
What Are the Different Kinds of Home Loans?
Home loans come in several types, each with its own conditions and benefits. These are some of the most common kinds of home loans offered:
An FHA loan is a loan that’s regulated and insured by the Federal Housing Administration but offered by private money lenders. It typically has low down payments and can be used by home buyers with low credit scores. Because of this, they can be an option for borrowers who struggle with bad credit or can’t afford a big down payment.
The loan amount limit varies in each US county. For instance, Bexar County, TX, currently (May 2021) has a limit of $403,650 for single-family houses, while Harris County’s limit is $356,362.
VA and USDA loans are two special loan programs by the Department of Veterans Affairs and the Department of Agriculture, respectively.
VA loans are available for veterans, active service members, and spouses of soldiers who died on duty or suffered from disabilities. They’re low-interest and give you the option not to make down payments. However, the VA does require a funding fee in return. For people taking out their first VA loan, this can be up to 2.3 percent of the loan amount. If you do decide to make a down payment, the fee can be reduced to as low as 1.4 percent.
Meanwhile, the USDA loan is available for borrowers buying homes in rural areas and doesn’t require down payments. You can check on the USDA’s website so see if the property you want to buy is located in an eligible area. Do keep in mind that this loan is only for buyers who’ll make the new house their primary residence, not as a rental or vacation home. The USDA also has a funding or guarantee fee, which is one percent of the loan amount.
A conventional loan refers to any loan that isn’t in any government program. This loan comes in two types: conforming and non-conforming.
Conforming loans follow the loan limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation -- also known as Fannie Mae and Freddie Mac. As of 2021, the limit in most counties is $548,250. They also tend to have lower down payments and are more accepting of borrowers with lower credit scores.
Non-conforming loans don’t follow any loan limit. Because of this, they can be more suitable for high-end real estate buyers. Since the loans are higher and down payment requirements can go over 20 percent, the lender will check whether you have the credit score and income to afford the property.
Why Use a Home Loan?
A home loan lets you retain more of your liquid assets compared to paying in cash outright. Let’s say you had $450,000 in the bank and used $400,000 to buy the property. You’d only have $50,000 left for other priorities. But if you made a $50,000 down payment and borrowed $400,000, you can still use the remaining $400,000 in the bank for other expenses or to make investments.
Supreme Lending can help you choose the right home loans in San Antonio to finance your purchase. They can guide you through the entire process until you’ve completely closed the deal. You can apply now through this website to get started.