Austin Home Loans

Summary: This article explains the process of applying for a home loan in Austin, Texas. It is written for first-time home buyers in particular.

There's a good chance your home will be the largest purchase you ever make. So it only makes sense to do plenty of research before you venture into the process. In this lesson, you'll learn some of the most important lessons about Austin home loans and lenders.

Applying for Your Home Loan

How does one apply for a home loan? What steps are involved? What kinds of documents are required? These are some of the most common questions among Austin home buyers. Here's an overview of the application process you'll encounter:

Credit check: We recommend checking your credit reports and scores at least three months before you apply for your Austin home loan. If you find any mistakes on your credit reports, have them corrected as quickly as possible. Make sure you have a credit score of at least 620. If your score is below 600, you might have trouble getting approved for a loan (or you might be limited to an FHA-insured home loan).

Budgeting process: Some first-time home buyers trust their lenders to tell them what they can afford to pay each month. This is a mistake. Why would you entrust something like that to a stranger? It's your job to determine your housing budget, and you should do it before you start shopping for an Austin home loan. Consider how much you earn each month, and how much you spend on debt obligations. Next, factor in your savings, lifestyle expenses and your emergency fund. How much is left over? That's the maximum amount you can put toward your Austin mortgage each month.

Mortgage selection: What kind of home loan do you need? Do you want to use a fixed-rate mortgage for long-term predictability, or an adjustable-rate loan? And what about FHA loans -- have you considered those? These are some of the questions you need to consider (and research) before you start talking to Austin mortgage lenders. Hint: If you're planning to stay in the home for a long time, you're probably better off with a fixed rate.

Approval vs. Affordable

In the "budgeting" paragraph above, we discussed the importance of establishing a monthly spending limit. Why is this so important? Because you could actually be approved for an Austin home loan that's too big for you. It's not as common as it was during the housing boom, but it still happens.

You see, there's a thing called the secondary mortgage market. This is where lenders can sell their mortgage products off to investors, usually through Freddie Mac and Fannie Mae. This allows them to get the loan off their balance sheets entirely. Do you think such a lender is concerned with your ability to manage the payments three years from now? Hardly. They won't even own the loan at that point. Not all lenders behave this way, but many of them do -- especially the bigger banks. This is why you need to look out for yourself, in terms of affordability. Before you apply for an Austin home loan, you need to know what you can comfortably afford to spend each month.

Working With Austin Mortgage Lenders

You can get a home loan from a local Austin bank or credit union. You can also work with one of the big national lenders if you'd like, though we recommend "keeping it local." Regardless, of whom you work with, there are three important points to keep in mind...

1. Your lender is not your financial advisor.

We touched on this above, in the approval vs. affordable section. It's not your lender's job to tell you what you can afford to pay each month, toward a mortgage payment. They are in the business of lending money -- period. What does this mean to you, as a borrower? It means you should never trust a lender with your financial wellbeing. It means you need to look out for yourself and do plenty of research. And it means you need to have a housing budget established, before you apply for an Austin home loan.

2. You should get offers from more than one lender.

Let's assume I have a credit score of 735, a down payment of 10%, and a debt-to-income ratio of 25%. Based on those qualifying factors, three different lenders might offer me three different interest rates. Why? Because they all have slightly different business models. This is why it's important to apply for a loan with more than one bank.

3. A local lender may give you a better deal than one of the "big banks."

If you have a working relationship with a bank in Austin, you might want to start your mortgage search there. Your local bank might give you better terms on a home loan, since you're already a customer. Additionally, local banks did not engage in risky subprime lending as much as the big national banks. As a result, they suffered less damage during the mortgage and housing crisis of 2008 - 2010. So you may find that they offer you a better deal than a bigger bank. The same goes for credit unions, so consider them too.

We hope this guide to Austin home loans makes the process a little easier for you. We publish new articles and lessons on a regular basis, so check back often. Use the search tool above to find related information on the site. Good luck with your Austin, Texas mortgage search!