Most people don’t think about the need to investigate mortgages until it’s time to buy a home in Houston. Mortgages are a necessary part of home-ownership for the majority of people, but so many people believe they won’t qualify or won’t be able to afford a mortgage that they put off buying a home.

These same people will continue to pay rent to a landlord to live in a home, simply because they don’t know which steps to take to apply for a mortgage of their own.

Why Buy a Home in Houston?

If you’re currently renting a home, then your rent payments are likely paying off your landlord’s mortgage. The longer you remain in that rental property, the more likely it will be that your rent payments are increased each year.

However, when you purchase a home in Houston, mortgage payments can be fixed to stay the same over a period of several years. You make your ‘rent’ payments the same as you always have, only this time each payment is reducing how much you owe, rather than just helping a landlord to pay off his debts.

House Hunting In Houston

Houston house prices have been reduced in recent years, which mean you could benefit from getting into a home that could be worth considerably more than the purchase price.

If you’re careful about shopping around for your home, you should learn quickly which homes are being sold at a reasonable price in certain areas of Houston, and which ones are underpriced.

You might even decide to purchase a cheaper home that has great potential to have a little cosmetic work done to it to increase the value quickly. This can build up your available equity fast.

Mortgage Pre-Approval

Before you go house hunting in Houston, mortgage pre-approvals can help you to stay within your own price range. Call your local mortgage professional and ask how much you are able to comfortably borrow on a mortgage before you go hunting.

This will give you a clear idea of your exact price range and will stop you from looking for homes that are far too expensive for your current income levels. You’ll find that buying a home in Houston that is within your own price range will mean it will be much easier to afford the repayments each month without having to struggle.

Your mortgage pre-approval is calculated using your current income and your current repayment commitments. Lenders then figure out how much of your income is remaining in order to service a new mortgage and then a total borrowing figure is calculated from this.

Before you head out to buy a home in Houston, mortgage planning and pre-approving your borrowing amount could save you a lot of stress and fuss. You’ll be glad you took the time to check your mortgage capacity before you signed a contract on a home purchase.

Setting a Budget

Working out exactly how much you can afford to pay for a new property is critical. Essentially, you need to work out how much disposable income you have each month to allot to mortgage payments. Working backwards from this amount, you will be able to determine your overall budget to buy a property.

To this end, you will need to draw up a monthly budget of incomings and outgoings and then use one of the many Houston mortgage calculators available online to calculate your total budget. You will need to input the term of the loan and the interest rate you expect to be paying as well.

The recent debacle on the housing market has shown the value of prudence, meaning it is unwise to spend your full income every month without leaving a buffer. Thus, deduct a minimum 10% from the monthly figure you came up with, just as a precaution. You can put this money in a savings account every month for an emergency fund.

Understanding Houston Home Mortgages

The two main types of Houston home mortgages are fixed rate mortgages and adjustable rate mortgages. Each one comes with advantages and disadvantages.

A fixed rate mortgage has a set interest rate for the duration of the loan contract. This is an advantage when interest rates are rising, as your rate will not fluctuate with the market and your payments will be stable. On the other hand, if rates drop, you will still be paying the same interest. Even so, if you are buying your home with the intention of living there longer than the country median of nine years, a fixed rate mortgage is probably your best option.

An adjustable rate mortgage means that your interest rate will fluctuate according to market rates and other indicators. However, most Houston mortgage contracts involve a fixed interest rate for a set period of time, which varies from lender to lender, that subsequently becomes variable. Initially, the rate will often be lower than a traditional fixed rate mortgage with very low monthly payments by comparison. On the other hand, once the initial period is up, your monthly payments will increase significantly, as the interest rate can climb even higher than normal market rates.

The secret with an ARM is to take advantage of the initial fixed rate period, which can vary from 1 month to ten years. Therefore, you can refinance to a fixed rate mortgage after the ten years are up or sell the property.

Depending on your goals, there are many other Houston home mortgages under each category, which may be more suitable for you, including an interest only Houston mortgage, or no mortgage insurance options.

Long-term Outlook

When buying a home, you need to look further than just your current needs. Think about buying a home that suits your needs now. There’s no point paying a mortgage on a big family home when there is only two people living there. If you intend on having a family later, you can always sell the smaller home when the time comes and trade up to a family home. You may also consider downsizing to a smaller home if the family have all grown up and moved away. The up-keep on a smaller home will be easier to manage and the mortgage payments may also be lower.

You may also need to consider the potential resale value of your home, because there will come a point when you will want to move. The main factor you will need to consider is location, because while a property can be improved, there is little you can do about the area.

Essentially, the more growth potential an area has, the higher the resale value of your home will be. It may seem premature to consider resale value before you have even found your home, but you should consider it a critical factor if you don’t want to end up underwater with your Houston home mortgage.

For example, the City of Houston Housing and Community Development Department (HCDD) offers a program that helps those with low and moderate incomes to buy a home in the incorporated areas of Houston. This program, known as HAP (Homebuyer’s Assistance Program) will help to offset parts of the down payment, closing costs and other expenses that purchasing a home will incur.

Some of the eligibility conditions of this program include the demonstrated ability of the applicant to obtain a loan and the family’s income must be below 80% of the average income of the area.

The value of the home you intend to purchase cannot exceed a value of $200,000 according to the Single Family Mortgage Limits of the National Housing Act and it must be located within the taxation boundaries of the city.

As an applicant, you must invest a minimum of $500 in the purchasing transaction, according to the program. The HAP can award approximately $19,000 in financial aid to families whose earnings are below 80% of the average income for that area.

This should amount to approximately $45,000 for a family of three across most areas. Remember that this is the combined income of the whole family. If you’re in doubt about eligibility, always check before proceeding.

The state of Texas also provides financial assistance for first time homebuyers via a down payment assistance program or via the Texas Mortgage Credit program. The First Time Homebuyer Program is a relatively new program which offers up to 4% assistance on the first lien mortgage sum and a 10 year deferred second lien to assist with the down payment and closing costs.

While you must make regular repayments on the first lien, the program does not require you to make monthly payments on the second lien. However, if you sell the property or refinance before the 10 year period is up then you will have to repay the amount in full.

The Texas Mortgage Credit Program aims to make home buying more affordable for all the residents of the state with a low to moderate income, especially for first time buyers. This is probably one of the best options for those seeking a Houston home mortgage loan at affordable rates.

To find out more about financial assistance for Houston home mortgage loans, especially eligibility conditions, you should visit www.houstontx.gov . If you look under the housing heading you will find the information pertinent to financial aid for homebuyers.

Before You Go House Hunting

Before you go out to hunt for a home to buy you need to first work out your budget. You should know exactly how much income is coming into the household and how much your current expenses are. This is so you know exactly what you can afford to spend making your monthly mortgage repayments.

Regardless of how much you’re able to borrow in terms of the total mortgage amount, always spend a little time playing with your own numbers in a good mortgage calculator. You’ll be able to see how much your repayments are and how much they can alter if the interest rate should happen to change.

What Can You Afford Monthly?

Sometimes lenders will tell you you’re able to borrow a significantly larger amount of money than you really can afford. They work their affordability calculations using their own servicing algorithms, but this doesn’t always take into account your own ability to budget.

No matter what you believe your maximum borrowing capacity is, always stick to an amount based on what you can afford to repay on your monthly repayments comfortably.

Finding the Best Mortgage Rate

Lenders will often advertise really attractive low mortgage rates in an effort to attract new business. Even though the advertised rate might look fabulous, it’s wise to remember that not every borrower will qualify for those special deals.

Before you sign your mortgage contracts, take some time to check out the actual rate you’re being charged. You might find that your credit score could impact your mortgage rate. You could also find that other criteria could also affect how much you’re charged.

Just because you might be receiving a rate that’s a little higher than the advertised rate doesn’t automatically mean it’s a bad rate. Remember, the best mortgage rate is the one that’s right for you and your personal financial situation.

Spend some time talking to a mortgage professional about your individual circumstances and be realistic about what you know you can afford to pay each month on your Houston home mortgage.

Shopping Around

Different banks and lenders have different lending criteria. Just because one bank won’t lend you money doesn’t mean there won’t be one out there willing to help you.

It’s important to shop around for the best Houston home mortgage to suit your personal financial situation. This doesn’t mean just comparing different mortgage rates. It could also mean finding the best loan type for your needs and the best lender to suit your purposes.

Before you jump into a Houston home mortgage, always speak to a qualified mortgage professional about your options. Be sure to ask plenty of questions and always ask for clarification if there’s ever anything you don’t understand. Remember, this is your financial future, so it’s important that you get it right.