Before we get to the programs available only to Texas residents, we’ll first touch on several national home buyer programs that anyone can access. It’s a good idea to consider both federal and state programs when you conduct your mortgage search.
FHA loans, which many typical lenders include as part of their mortgage portfolio, is actually handled in conjunction with the Federal Housing Administration. These loans offer the lowest down payment options available (save for those programs offered specifically to veterans). In fact, just a 3.5% down payment is expected when you get one of these loans. For reference, a conventional mortgage typically calls for a 20% down payment. The 3.5% down payment only applies to applicants who have a FICO® credit score of 580 or higher. Should you fall below that threshold, the FHA will require you to pay a 10% down payment, which still beats what most mortgages in Texas can offer.
Veterans, current members of the U.S. military, their spouses and other eligible beneficiaries can apply for a VA mortgage through the Department of Veterans Affairs. These are perfect for applicable first-time home buyers who lack the capital for a normal down payment but have the monthly income to take on a mortgage. So as long as your new home’s value falls within the standards of a VA loan, you can have as much as 100% of the price covered by your loan.
As great as this sounds, VA loans do come paired with a VA Funding Fee that can range anywhere from 1.25% to 2.4%. You could think of this as a substitute down payment, but even if you do, it’s still less than the vast majority of other options. On top of this, you need a minimum FICO® credit score of about 620 for approval under most individual lenders, although the VA doesn’t technically enforce a credit score minimum.
Outside of this funding fee, you won’t have to pay much else at the time of your purchase. Closing costs are forever present, but the VA has lowered these beneath what most other options charge. Also, because these loans are insured by the VA, buyers won’t have to get private mortgage insurance to cover themselves in case of a default.
In an effort to get home buyers to move into rural, semi-rural and certain suburban areas around the U.S., the United States Department of Agriculture developed the USDA loan program. These apply to single-family homes that are located in approved areas.
Similar to their VA loan counterparts, USDA loans do not come with minimum down payment requirements, allowing you to finance up to 100% of your new home’s value. Should your FICO® Cedit Score land too low, your down payment may be pushed to 10% of your home’s value, though.
The only factor that could hold you back from getting approved for a USDA loan is having too high of an income.To qualify for a common USDA loan through the guaranteed loan program, your household income generally can’t exceed 115% of the median income for the area you wish to live in.Good Neighbor Next Door Program
The Good Neighbor Next Door Program was specifically put in place to attract pre-K through 12th-grade teachers and emergency personnel to areas around the U.S where there is a need for such professionals. The federal government has identified these various places and deemed them “revitalization areas.” So if you’re a police officer, firefighter, emergency medical technician or school teacher, you can use this program to get a house in one of these areas for 50% off.
While this program is obviously beneficial, you don’t physically obtain your mortgage through it. Instead your discount will apply through the program, and you can pay cash or get a conventional, FHA or VA Program to cover the balance. You will, however, be required by law to leave this home as your primary residence for no less than three years, at which point you can sell it and keep the profits.
Fannie Mae/Freddie Mac
The federal government created Freddie Mac and Fannie Mae to help build stability in the mortgage market, and each offer a loan program geared towards first-time home buyers.
Fannie Mae’s HomeReady® mortgage requires a lower down payment than an FHA loan at 3%. So on a $250,000 home, that would be a $7,500 down payment, which should be doable for most applicants. Just make sure that your monthly income doesn’t cross the U.S. median by much, if at all, and your credit score is at least a 620. While you will be required to pay for private mortgage insurance, you can cancel once you have accrued 20% equity in your home.
The Home Possible: 95% LTV and Home Possible Advantage: 97% LTV mortgages from Freddie Mac are very similar to Fannie Mae’s offering, just with some minor tweaks. The first of the above loans is available in 15- to 30-year fixed-rate terms, and also as a 5/1, 5/5, 7/1 or 10/1 adjustable-rate mortgage (ARM). But the Home Possible Advantage loan comes in just a fixed-rate variation, with terms available from 15 to 30 years.
Texas Mortgage Credit Certificate Program
As of Feb. 1, 2019, this program is only being offered in combination with the My First Texas Home program. Similar to programs many states offer, the Texas Mortgage Credit Certificate Program allows borrowers to save on their federal income taxes by applying as much as 40% of their mortgage interest payments as a tax credit. However, this is limited to a maximum of $2,000 per year.
To get in on this beneficial program, you only need to have not been a homeowner during the last three years. First-time home buyers and veterans who meet specific requirements don’t have to abide by this, though.
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