Texas Home Loans

Conventional Home Loans

A conventional home loan is the most common type of mortgage loan, and is not guaranteed or insured by the federal government. Conventional mortgages are ideal for borrowers with good or excellent credit and a low debt-to-income ratio.

 What You Should Know

• As little as 3% for a down payment.
• Credit scores higher than 620 required.
• A fixed rate offers you a reliable monthly payment.
• Adjustable Rate Mortgages may look enticing with lower monthly payments, but eventually, they adjust and increase after the fixed term.
• Available for a purchase, refinance, or cash-out refinance loan.

 Conventional home loans present fewer hurdles than an FHA, USDA, or VA Home Loan. They also typically take a short amount of time to process. A conventional Texas mortgage can be a great option for buyers who have excellent credit and ample savings. If you are financially stable, a conventional loan may be the most economic mortgage option.

 FHA Loan Requirements:

  • Credit – A 620 credit score or higher is required. Higher credit scores could be required up to 680 if going for the 3% down payment option.
  • Down Payment – The down payment requirement for a conventional loan is 3% for many first-time home buyers.
  • Employment– 2 years of verifiable employment is required for a conventional loan.  The required documentation to verify employment and income are a most recent paystub, W-2s for 2 years, and tax returns for 2 years. If you work for larger corporations, we have a streamlined process that would eliminate this checklist! We’ll help identify if you qualify for this loan options
  • Private Mortgage Insurance– Any loan that does not have a 20% down payment will require PMI – private mortgage insurance. This is a monthly fee paid to the lender. Once your loan is paid to 80% of the purchase price this extra monthly fee can be eliminated.

 New 2023 Conventional Loan Limit Increase

The new 2023 Conventional Loan Limit Increased loan limit to $726,200 from the previous loan of $647,200. This is welcome news as most homes have increased anywhere from 10% – 20% over the last few years.

FHA Loans

Texas FHA Mortgage Loans are the easiest mortgage and most lenient loan to qualify for. They offer a low down payment and are available to homebuyers with less than perfect credit.

They are insured against default by the Federal Housing Administration (FHA).  FHA typically offers lower interest rates, lower income requirements, and does not hold as much weight to your credit score compared to other loan programs also known as conventional loans.

 The FHA program provides mortgage insurance for a person to purchase or refinance a principal residence. The borrower is eligible for approximately 96.5% financing. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.

 What You Should Know

  • Generally easier to qualify for than conventional loans.
  • New 2023 FHA Loan Limit in Texas $472,030
  • Lower down payment requirements.
  • Cannot exceed statutory loan limits as set by each county.
  • HUD 203(B) MORTGAGE INSURANCE

 Texas FHA loans require only 3.5% of the purchase price as a down payment (due at the closing of the loan), while many loan programs require a full 5% or more. The 3.5% down payment can be gifted from a relative or employer.

 FHA Loan Requirements:

  • Credit– With a minimum of a 620 credit score this might be a great option to consider.  We will review your application for any past collections, bad debt, bankruptcies, foreclosures, tax liens, and judgments. If none of these apply to you your credit should be just fine to qualify.
  • Down Payment– FHA loans are a top choice for the minimum down payment of 3.5% down.  This money can be borrowed from family or employer, or a down payment assistance program.  In unique circumstances, a higher down payment could be required depending on debt ratios or other delinquencies.
  • Employment– FHA loans require 2 years of verifiable employment history.  It is acceptable to have changed jobs in some instances as-long-as you stay in the same line of work or industry. For self-employed borrowers you must have the same business for 2 years.
  • Debt-to-Income– The debt to income is an evaluation of your income compared to your debts + new mortgage payment being factored in. The bank wants to see you can afford the new home without going broke or being put in a financial hardship in the future.  This is known as your “debt-to-income ratio”.  FHA loans allow a maximum DTI ratio of 43%, however with compensating factors we can go well above this and have helped many clients get approved over 50% debt ratio.
  • Property– Eligible properties are one-to-four unit structures. Is the property in good condition or bad condition? This includes basic standards of living conditions that must be met, which ensures both a safe and healthy home to live in, and to ensure the banks appraised value is acceptable collateral in case of default.
  • Mortgage Insurance – All FHA loans are required to carry mortgage insurance and monthly PMI – private mortgage insurance.  The upfront MI is factored in your loan amount and has no bearing or impact on your down payment amount. We’ll help break this down based on your specific purchase price and loan amount.

 Benefits of FHA loans vConventional financing

  • You can buy a home with low/no down payment or closing costs
  • Your down payment can be gifted from family or received through other government programs.
  • Easy credit qualifying for great interest rates even with lower credit scores.
  • Fixed rate programs to help budget your income and prevent foreclosure.
  • Qualify even if you have had bankruptcy in the past.

Veterans Administration (VA) Loans

VA loans are a special type of home mortgage designed to provide long-term home financing to active military members and veterans. In many instances, their interest rates can be better than other conventional loans. These home loans are guaranteed by the U.S. Department of Veterans Affairs. VA loans allow eligible veterans and active military personnel to realize their homeownership dreams and help existing VA homeowners with money-saving refinance options.

 Eligibility Requirements

  • Active-duty military
  • Veterans
  • Reservists and members of the National Guard
  • Some surviving spouses of veterans

 Veterans with active duty service, that was not dishonorable, during World War II and later periods, are eligible for VA loan benefits. World War II (September 16, 1940 to July 25, 1947), Korean conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975) veterans must have at least 90 days of service.

 Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days of active service. Veterans of enlisted service which began after September 7, 1980, or officers with service beginning after October 16,1981, must in most cases have served at least 2 years.

 VA Loan Benefits

  • No penalty fee if you pay the loan off early
  • No private mortgage insurance requirements
  • VA may be able to provide some assistance if mortgage payment problems arise
  • FICO as low as 600

 VA Documentation Needed

The three specific pieces of documentation needed to determine your eligibility are:

  • DD214 for discharged veterans, a statement of service for active military personnel
  • Certificate of eligibility (COE) to determine you have VA entitlement.
  • Meet the qualifying criteria such as minimum FICO/credit scores, debt-to-income (DTI) ratios, and find out what your county’s maximum loan amount is.

FAQ’s

Q: Are the children of a living or deceased veteran eligible for the home loan benefit?
No, the children of an eligible veteran are not eligible for the home loan benefit.

 Q: How can I obtain proof of military service?

Standard Form 180, Request Pertaining to Military Records, is used to apply for proof of military service regardless of whether you served on regular active duty or in the selected reserves. This request form is NOT processed by VA. Rather, Standard Form 180 is completed and mailed to the appropriate custodian of military service records. Instructions are provided on the reverse of the form to assist in determining the correct forwarding address. #1 VA Mortgage Lender in Houston

 Q: Is the surviving spouse of a deceased veteran eligible for the home loan benefit?

The unmarried surviving spouse of a veteran who died on active duty or as the result of a service-connected disability is eligible for the home loan benefit.

 USDA Loans

Offer 100% financing and a great option for a specific client and area of purchase. USDA loans are an excellent option for those who want to purchase a home in rural areas which we see on the outside boundaries of major cities, suburbs and other rural smaller communities in Texas. They are available for low income to moderate income borrowers.

 A USDA home loan is a zero-down-payment mortgage for homebuyers in eligible towns and rural areas. USDA loans are guaranteed by the USDA Rural Development Guaranteed Housing Loan Program.

In addition to having no down payment requirements, USDA home loans often also have lower rates than conventional mortgages because the government is taking on the risks associated with lending.

And USDA loans don’t require borrowers to pay for traditional private mortgage insurance, or PMI. 

 Types of USDA Loans

Loan guarantees: The USDA guarantees a mortgage issued by a participating local lender, allowing borrowers to qualify for low mortgage interest rates without a down payment.  While borrowers don’t have to pay for PMI, they will have to pay an upfront fee of 1% and an annual fee of 0.35% of the loan balance, which is amortized across monthly payments. This typically costs less than traditional PMI.

 Direct loans: Issued by the USDA, these mortgages are for low- and very low-income applicants who are without safe housing or can’t access a traditional home loan. With subsidies, interest rates can be as low as 1%. These loans also offer terms of up to 38 years. The USDA usually issues direct loans for homes with a market value below the area loan limit.

 Home improvement loans and grants: These loans or outright financial awards permit homeowners to repair or upgrade their homes. Loans are capped at $40,000, while grants have a maximum of $10,000. Packages can also combine a loan and a grant, providing up to $50,000 in total assistance. Loan terms are for 20 years with a 1% interest rate. If the borrower sells the home within three years, they’ll have to repay any grant money.

 Loan Guarantee Eligibility Requirements

Income limits to qualify for a USDA-guaranteed home loan issued by a partner lender vary by location and household size. But the borrower’s household income cannot exceed 115% of the median income in the county where their new house is located.

 USDA-guaranteed home loans can fund only owner-occupied primary residences. Borrowers must also:

  • Be a U.S. citizen or permanent resident.
  • Have a proven history of dependable income.
  • Have a credit history that demonstrates a reliable ability to repay debts, and a score of at least 640 to qualify for streamlined processing. Borrowers without credit history can be evaluated through alternative criteria. 

 The monthly payment on the loan — including principal, interest, insurance and taxes — must be 29% or less of the borrower’s monthly income. Other monthly debt payments cannot exceed 41% of the borrower’s income.

 Direct Home Loan Eligibility Requirements

The USDA also directly issues loans to certain low-income borrowers. To qualify for a Single Family Housing Direct Home Loan, borrowers must:

  • Meet income limits, which are designated by county and metro area.
  • Currently be without “decent, safe, and sanitary” housing.
  • Be unable to meet the qualifications necessary to obtain another kind of mortgage.
  • Be a U.S. citizen or eligible noncitizen. 

 Borrowers who have been prohibited from federal programs won’t be eligible for a Single Family Housing Direct Home Loan, and this mortgage can’t be used to finance a property that is valued above the area’s loan limit. 

Jumbo Loans

A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan in 2023 is $726,200 in most counties. Homes that exceed the local conforming loan limit require a jumbo loan.

 Also called non-conforming conventional mortgages, jumbo loans are considered riskier for lenders because these loans can’t be guaranteed by Fannie Mae and Freddie Mac, meaning the lender is not protected from losses if a borrower defaults. Jumbo loans are typically available with either a fixed interest rate or an adjustable rate, and they come with a variety of terms.

 Home Equity Loan

When you need money and don’t want to pull it from your savings or IRA account a Home Equity loan is a great way to get cash out from your home. The Home Equity Loan process includes getting a new appraisal based off of the current market value of the property. Once that is established you can get a loan for 80% or less of the value of the appraisal. If your loan balance is over 80% of the appraised value you would not qualify to get cash out of your home.

 Advantages of Getting Cash Out

 Disadvantages of Getting Cash Out

  • Raising your loan balance
  • Using the money for the wrong reasons
  • Loaning the money to friends & family
  • Taking a higher interest rate if the market is higher

 Getting cash out is ideal for anyone who has equity built up and is looking to take advantage of the benefits. With increasing home values it’s a great way to finance large purchases or consolidate smaller debts.

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