Understanding Mortgage Loan Types in Texas

Buying a home is a significant milestone, whether you're starting a family or simply looking to put down roots. The process requires making many important decisions, including selecting the correct mortgage loan options.

In Texas, where home values and property types vary greatly, understanding the different types of mortgage loans available can help you make smart financial choices. At First State Bank, we're here to simplify the process and provide clarity as you navigate your home financing journey.

Call 940-665-1711 or contact us online to discuss mortgage options with one of our expert bankers.

What Are Mortage Loans?

A mortgage is a loan used for home, land, and other types of real estate. If approved for a loan, you must repay the principal loan and interest over an agreed number of years. The property itself serves as collateral, which means the lender, the bank, can reclaim possession of the home if you fail to make payments.

There are different types of mortgage loans, each with varying terms, interest structures, benefits, and costs. To get a mortgage loan, you must undergo an application and underwriting process. This helps lenders determine the risk of a loan and whether you can manage the repayment plan.

Types of Mortgage Loans

First State Bank offers various types of mortgage loans in Texas, each tailored to meet different homebuyer needs. If you qualify for more than one, it's best to consider which factors matter most to you.

These are different mortgage loan options to consider:

Fixed Rate Mortgages

Easier long-term budgeting from predictable payments
Protection against rising interest rates
Ideal for homeowners planning to stay long-term

A fixed -rate mortgage is one of the most popular home loan options, as it offers potential homeowners stable and predictable payments. With this option, your interest rate and monthly principal and interest payments remain the same for the entire life of the loan until it is fully paid, typically 15, 20, or 30 years.

For example, a young couple in Waco wants to purchase a family home. They might select a 20-year fixed-rate loan to ensure steady monthly payments throughout their mortgage term. Whatever happens to the real estate market, their mortgage payments are fixed.

Adjustable-Rate Mortgages (ARMs)

Lower initial monthly payments
Potential for savings if intertest rates remain low
Suitable for short-term homeowners

ARMs begin with a lower fixed interest rate for a set period, usually the first 5, 7, or 10 years of their loan. After this period, your payments could change annually based on a new rate determined by market conditions.

For example, a professional relocating to Dallas for a five-year assignment may benefit from a 5/1 ARM. Before moving they can capitalize on lower initial payments, giving them the option to sell the property, refinance, or continue payment with the adjusted rate.

Interest-Only Loans

Lower initial payments
More cash flow flexibility early in the loan term
Potential investment strategy for short-term owners

Interest-only loans require only interest payments for a set period, typically 5 to 10 years. After this period, you pay a higher amount to cover the principal and interest. Although a less commonly used option, they are often chosen by investors who may benefit from low initial payments while renovating or holding a property for resale.

For example, an investor can use an interest-only loan to purchase a condo in Fort Worth. The loan’s payment structure keeps the upfront costs low while they renovate and put the house on the market. After selling or renting the property, their income can cover their payments.

Reverse Mortgage

Supplemental income for retirees
No monthly mortgage payments are required
Stay in your home while accessing its value

Available to homeowners aged 62 and older, reverse mortgages allow you to convert part of your home's equity into cash without selling or making monthly payments. Only Home Equity Conversion Mortgages backed by the Federal Housing Administration are permitted for most uses.

For example, a retired couple in Gainesville may choose a reverse mortgage to supplement their income while remaining in their longtime family home.

The Mortgage Process

Every potential homeowner’s circumstances are unique, so there may be some differences in your mortgage application.

However, navigating the mortgage process typically involves several key steps:

Pre-Qualification: Your lender conducts an informal assessment to estimate what you can afford. You provide self-reported information like your approximate income, credit score, and debts, and they tell you how much you can borrow. This helps you understand your suitable price range before house hunting.
Pre-Approval: Your lender will conduct a more formal and thorough review. This includes verifying your income, credit checks, and debt evaluation through pay stubs, credit reports, and other official documents. This shows how much a lender is willing to loan you, but it’s not a guarantee.
House Hunting & Offer: Once pre-approved, you can shop for homes and make a competitive offer. A pre-approval letter can benefit you in a competitive market by showing sellers you are a serious, qualified buyer.
Loan Application & Processing: After an offer is accepted, the loan application is processed, including appraisal and underwriting.
Closing: Final documents are signed, and the funds are disbursed to complete the purchase.

How to Shop for the Right Mortgage

Your ability to qualify for a mortgage loan and the interest rate you receive can depend on several key factors:

Credit Score: Higher scores often mean better loan terms.
Income & Employment History: Stable, verifiable income helps demonstrate repayment ability.
Debt-to-Income Ratio: Lower ratios show lenders you have manageable debt levels.
Down payment: Larger down payments can improve approval odds.
Property Type and Location: Lenders consider the property’s value and market conditions.

Finding the right mortgage loan requires thoughtful comparison and research. Here are some ways to ensure you get the best mortgage deals for your needs:

Evaluate Your Budget: Know what you can afford, including monthly payments, taxes, and insurance.
Compare Loan Types: Shop around and weigh the pros and cons of different loans.
Look Beyond the Rate: Consider terms, fees, closing costs, and lender service quality.

Why Shop for Mortgage Loan Options at First State Bank

At First State Bank, we take pride in being a trusted bank for various types of home loans in Texas.

Our mission is to provide personalized guidance, competitive rates, and home financing solutions that truly fit your needs. We provide:

Loan Decision-Making: We’re Texas-based and community-focused, which means faster approvals and a deeper understanding of local markets.
Personalized Service: We take the time to get to know you and recommend the best path forward.
Experienced Loan Officers: Our team has decades of experience guiding people through every mortgage scenario.

In addition to traditional mortgage loans, First State Bank offers a variety of financing options to help homeowners secure or expand their properties:

Construction Loans: Finance the building of your dream home.
Land & Lot Loans: Purchase land for future use or investment with flexible terms.
Home Equity Loans: Tap into your home’s equity for renovations, debt consolidation, or significant expenses with fixed rates and predictable payments.

Whether you’re buying, building, or borrowing against your home, First State Bank has the tools and team to support your financial goals.

Let First State Bank Help You Own Your First Home

Understanding the types of mortgage loans available is essential to making informed decisions as a homebuyer. Each loan type offers unique benefits, and the right choice depends on your budget, plans, and financial profile.

At First State Bank, we are committed to walking you through every step of your mortgage journey. Let us help you find a loan that fits your future.

Contact our experts online for more information.

*Disclaimer: All loans are subject to credit approval. Terms and conditions apply. Contact First State Bank for more information.