There are lots of home loan types to consider when buying a home in California or Texas. It makes sense that first-time homebuyers tend to feel confused and overwhelmed. So let’s simplify things.
Mortgages are not one-size-fits-all. There are various programs available, but finding the best option largely depends on the buyer’s financial situation and the property being purchased. Below are the five primary types of home loans buyers might encounter in California or Texas.
Related: Types of Mortgage Loans
CONVENTIONAL HOME LOANS
Conventional home loans are one of the most common home loan types used in California and Texas. The private sector, not the federal government, insures these loans.
Fixed or adjustable rates, short or long terms, all are available for conventional loans. Terms of 15 or 30 years are the most common. With a 15-year term, homebuyers can pay off their mortgages quicker and save a lot of money on interest. However, the mortgage payments are a lot higher for a 15-year term than a 30-year term. A longer term allows lower monthly payments, but more money will be paid to cover interest over the entirety of the loan.
Down payments typically range from 3% – 20%.
FHA HOME LOAN
FHA is one of the most popular home loan types that is government-insured. The money still comes from a bank or mortgage lender in the private sector, like a conventional home loan; however, FHA insures the loan. FHA loans offer down payments of 3.5% with flexible qualification requirements.
VA HOME LOAN
VA home loans are a type of loan that is similar to FHA loans in that the government backs it; however, the U.S. Department of Veterans Affairs guarantees this loan. This program supports military service members and veterans, and their spouses in some instances. The best aspect of this loan type is that it provides 100% financing. With a VA loan, eligible borrowers can purchase a home in California and Texas with no down payment.
JUMBO VS. CONFORMING HOME LOAN
Many homebuyers encounter the terms “conforming” and “jumbo” when researching mortgages. These terms reflect the size of the loan with regard to the standard guidelines Freddie Mac and Fannie Mae used.
A conforming loan is similar to a conventional home loan that “conforms” to the size constraints used by Fannie Mae and Freddie Mac. Because it satisfies the requirements, a conforming loan can be sold to a Fannie or Freddie and then sold again to investors. For most areas in California, the conforming size limit for a single-family home ranges from $510,400 to $765,600. In Texas, the conforming loan limit for a single-family home is $510,400.
A jumbo loan exceeds the conforming limit stated above. This loan cannot be sold to government-sponsored enterprises (GSEs). Requirements to qualify can be stricter since it is a more substantial loan that is associated with more risk. In some instances, jumbo mortgages can exceed $1 million.
This blog covers a brief overview of just some of the home loan types available for homebuyers in California and Texas. Working with a reputable local lender and speaking with a highly-trained Mortgage Analyst is one of the best ways to find out what type of home loan works best for your financial situation. The JVM Lending Team is available 7 days a week by phone at (855) 855-4491 or by email at [email protected].