Debunking Some Common First-time Homebuyer Myths

First time homebuyers have many questions concerning things they must consider when buying a property, the amount they must spend, and the different sources they can tap to finance their investment. To assist first time home buyers in Texas and other parts of the U.S., many government bodies operate loan programs for first time home buyers. The aim of these programs is to help first time homebuyers secure home loan at relaxed norms. It is also important for homebuyers to avoid some common myths related to buying a home for the first time. To help buyers take steps in the right direction, the post lists some such misconceptions and corresponding facts. Take a look.

First-time Homebuyer.jpg

1. Buyers Must pay 20 Percent of the Loan Amount as Down Payment

Many buyers think they need to pay 20 percent of the loan value when buying a home. Though there is no denying the fact that paying 20 percent down payment can help lower your interest rates, this certainly is not a qualifying criterion to get a loan. Many  lenders offering conventional loans accept a lower downpayment, if you are willing to pay a higher interest rate. Opt for a private mortgage insurance, a fee that lenders charge for borrowers who pay less than 20 percent down payment. You can also opt for a loan program backed by government bodies such as USDA loan, VA loan, or FHA loan that have relaxed down payment norms.

2. Buyers With bad Credit Cannot get a Loan

A good credit score is one of the important factors lenders consider when approving a home loan case. That said, many lenders offer loans to buyers with bad credit provided they are ready to pay a higher interest rate. Further, lenders offering VHA, USDA, and FHA loans have relaxed credit score requirements and in some cases lend even to borrowers with a weak credit score (600 or less).

3. Using the Services of a Real Estate Agent is a Waste of Money and Time

There is no denying the fact that in this Internet age buyers can get important info with the click of a mouse. Many real estate sites have listings that provide info about vacant properties, and circle rates. All properties, however, are not listed which can result in the buyer missing out on some good houses within their budget. Local realtors have info about such properties and can help the buyer get the best deal according to their requirements. Further, real estate agents are negotiation experts and can help their clients save more when investing in a property.

4. A 30-Year Mortgage is Always the Best Option

Many first time home buyers prefer opting for a 30-year mortgage instead of a 15-year one due to the low EMI. 30-year mortgages, however, have a higher interest rate. When choosing between the two mortgage terms, it all comes down to the buyer’s preference. Borrowers who are cash strapped but do not mind paying a higher interest rate can opt for a 30-year mortgage. For buyers with a steady income and savings opting for a 15-year mortgage can be the better of the two options.

Conclusion

Buying a home for the first time can be a daunting task as the buyer, in most cases, has no or very limited clue about the factors to consider when investing in a property. If you are a first time homebuyer, avoiding these myths can help you take informed decisions. Further, when opting for a loan, discuss the pros and cons of different programs with your lender or a loan consultant.

Closing Costs VA Loan Borrowers Must Know About

Closing costs are one of the major costs associated with taking a VA home loan in Texas or any other state in the U.S. Typically, the VA loan closing costs vary in the range of 1-3 percent of the loan amount. The actual amount depends on many factors such as the property’s value, lender fees, and HOA fees. To lessen the burden of home loan borrowers, VA allows sellers to pay a part of the closing costs. If you too are looking for a Texas VA home loan, it is important for you to know about these costs. Here’s a list of some of the most important allowable and non-allowable VA loan closing costs. Take a look.

VA loan

Allowable Costs

Loan Origination fee

Lenders charge a loan origination fee of 1 percent of the total loan amount to cover the costs associated with processing the loan. Some common administrative costs associated with processing a loan are- application fee, notary fee, document preparation fee,  and tax service fee.

Appraisal fee

It is common for lenders to order a property appraisal before approving a home loan. The aim of this exercise is to ensure the property’s worth is not less than the value claimed by the buyer. The average VA appraisal fee is around $400-$450 for a single family residence. The fee is non-refundable, even if the loan is not approved.

VA Funding fee

VA funding fee is charged by the VA to offset losses that arise when a borrower defaults. VA funding fee varies in the range of 1.25 percent to 3.3 percent of the total amount depending on the service type, and the down payment amount. Veterans drawing a disability compensation or widows of veterans who died in the line of duty are exempted from paying this cost.

Non-allowable Costs

Attorney fee

Hiring an attorney to help with the interpretation of the sales contract or a timely closure, attracts an attorney fee of around $400. The VA, however, does not allow VA loan borrowers to pay an attorney fee except the title work.

Notary fee

The notary will validate the transaction between you and the seller by verifying the signatures of parties involved. Notary fees usually varies between $2-$20. The actual amount will depend on the regulations of the state where you get the sale deed notarized.

Tax Service fee

Tax service fee is charged to ensure that buyers pay the due property taxes. In case of conventional loans, the cost has to be paid by the buyer, however, VA does not allow veterans to pay this cost.

Conclusion

Closing costs form a major part of the home buying costs. Buyers can negotiate with the seller to pay a part of their closing costs as the VA allows sellers to pay up to 4 percent of the home loan as a part of the closing costs. Veterans can also finance closing costs into the loan,however, that would mean a higher monthly payment obligation.

5 Possible Hurdles You May Need to Cross When Obtaining a VA Loan

Though obtaining a VA loan is one of the easiest ways for veterans to secure their dream home in Texas and elsewhere in the US, some applications don’t go through. The reason is that some veteran applicants fall short of the qualifying requirements laid by the Department of Veteran Affairs. From a typo in the loan paperwork to misrepresentation of facts in the loan application, there can be several other reasons for the rejection of your VA loan application. To make sure your VA loan application is not rejected it is important to first know about the possible roadblocks in obtaining a VA loan. Continuing the discussion, the blog post discusses five hurdles you should know about before applying for a VA loan in Texas and elsewhere in the US.

va-home-loans

1. Low Income

The Department of Veteran Affairs require the applicants to have the “minimum residual income” to qualify for a VA loan in Texas and elsewhere. The minimum residual income, as the name suggests, is the amount left after incurring monthly expenses and the limit differs across states. Income is kept as one of the parameters to assess VA loan suitability, just to make sure the applicant has the financial bandwidth to comfortably pay monthly mortgages after getting done with fixed monthly expenses.

2. Low Property Appraisal

Qualified VA appraisers conduct property appraisal to determine the “fair market value” of the property before deciding an appropriate loan amount. Simply put, the VA appraisal is an assessment of the property’s value and habitable conditions. Though the appraisal process is a win-win proposition for the lender and the loan applicant, it can impact the loan amount if the property comes out to be undervalued. Most VA lenders are willing to sanction a loan amount equivalent to the “appraised value” and not the one quoted by the seller.

3. Bad Credit Score

Though the VA loan program has no minimum credit score requirements to apply, applicants shouldn’t underestimate the value of a sound credit score. The VA loan program is federally backed; however, the government needs to protect the interests of both the lender and borrower. That said, you should focus on improving your credit score before even thinking about applying for a VA loan in Texas. Most lenders prefer a 620 credit score; however, it doesn’t mean that securing a VA loan is impossible beyond 620. Improve the credit score as much as you can to increase the odds of securing VA finance in one go.

4. Unacceptable Property Purpose

If you are thinking to buy a holiday home for staying once in a while, the VA loan is probably not the option. You can secure a VA loan to buy a property in Texas or elsewhere in the US, provided it’s going to be your primary residence. Remember that you can still rent a portion of your primary residence as it’s not against the VA guidelines, however, VA loans can’t be used to finance holiday homes or rental properties.

5. High Debt-to-Income Ratio

If your monthly income is already tied up in other debts, it may hamper your chances of getting a VA loan approval. VA lenders give weightage to an individual’s debt-to-income ratio for assessing suitability. The best way to solve this problem is to wait until a debt is completely paid off before applying for a mortgage or better, try consolidating the debt to the loan amount to reduce the size of monthly payments. You can also find a co-borrower to get away with a high debt-to-income ratio.

Wrapping Up

The VA loan program has several guidelines, and therefore, it’s essential to get acquainted with the process before applying for a loan. The roadblocks mentioned in this post are avoidable, if you do your homework to fulfill the eligibility criteria. Spend some time researching the intricacies of the program, or even better, seek professional assistance from a reputable mortgage firm to increase the odds of getting your loan application accepted.

A Guide to Understanding VA Funding Fee

VA home loan in Texas and other parts of the U.S. are offered to American veterans or their surviving spouses. These loans are guaranteed by the US Department of Veteran Affairs and come with several benefits such as zero down payment, lower than usual interest rates, and no prepayment penalty. While most of the closing costs can can be paid by the seller, veteran borrowers are required to pay the VA funding fee, a onetime fee, out of their pocket. Veteran borrowers may also get this fee rolled into their loan account. If you are on active duty or a retired veteran, and are thinking of obtaining a VA home loan in Texas, you must know about the VA funding fee.

house on packs of banknotes on a grey background

Defining VA Funding Fee

VA funding fee is charged to lower the taxpayer’s burden and cover any losses that may arise due to the borrowers defaulting. The fee is paid directly to the VA and helps them continue providing benefits such as zero down payment to borrowers. Funding fee is a percentage of the loan amount and depends on many factors such as your military category, and whether you are buying your first home or a subsequent property. You can either choose to pay the VA funding fee upfront in cash or request the lender to roll this cost into your loan amount.

The Fee Amount

To be eligible for a  VA loan you do not have to provide down payment, however, paying some amount upfront helps and can lower the quantum of VA funding fee, which is 2.15 percent of the total amount for borrowers with no down payment. You can lower this to 1.5 percent by paying a down payment of  5 to 9 percent of the loan amount. If you have more cash at your disposal, pay 10 percent of the loan amount or more, which would help bring the VA funding fee down further to around 1.25 percent. Borrowers with a previous VA loan are required to pay 3.3 percent of the loan amount as VA funding fee.

Exemptions

Qualified veterans with a service related disability are exempt from paying VA funding fee. Surviving spouses of veterans who died in the line of duty, or due to a service-connected injury or disability can also apply for this benefit. Eligible borrowers need to apply for this exemption and must mail documents such as Certificate of Eligibility, a copy of the VA notification of disability rating, signed VA Form 26-8937, and documentation of retirement income received to the VA.

Conclusion

VA funding fee is one of the major costs associated with getting a VA home loan in Texas. When applying for a loan, ask your lender about the VA funding fee. The good news is that you can ask the lender to roll the cost in your loan amount, which makes owning your dream home affordable. That said, you must also remember that this will increase your monthly payment obligation.

A Guide to Help Understand My First Texas Home Program

Financing is one of the most important considerations when buying a house. Homebuyers need to research about the available home loans to choose one that suits them best. The decision can be difficult, particularly for first time homebuyers, as they have limited knowledge about where they can look for the best deals. To make homeownership more affordable and easy to obtain, the state of Texas runs My First Texas Home Program. To help spread awareness about the program, the post discusses some important info about it. Take a look.

First Texas Home Program

Eligibility Criteria

  • Available for households that fall in moderate and low income group.
  • The property must be located in Texas or a federally declared disaster area.
  • The borrower must be a first time homebuyer. Buyers who have not owned a home in the last three years are also eligible.
  • The property must be the buyer’s primary residence.

Types of Homes Financed

You can get a first time homebuyer loan to finance a new, existing or under construction house subject to a couple of conditions:

  • The price of the home must not exceed $370,379.
  • The house must have a permanent base and should comply with FHA guidelines.

Advantages

  • Competitive interest rates.
  • Down payment assistance available.
  • Long repayable mortgage (30 years).

Documents Required

When applying for a My First Texas Home loan, applicants would be required to submit certain documents that the lender will study to determine whether the borrower is in a financial position to afford the mortgage. Some of the common documents required by most lenders are:

  • Salary stubs and tax statements for the last three months.
  • Copy of the sale contract.
  • Recent bank statements of all the accounts held by the borrower.
  • Credit report.
  • Details about the outstanding amount, account numbers, and the nature of debt owed (in case of long term debts).
  • Proof of additional income.

Application Process

My First Texas Home loan program is backed by The Texas Department of Housing and Community Affairs. Loans are provided by private lenders recognized by the body. After the applicant files the application and submits necessary documents, the lender will evaluate different factors such as the individual’s debt obligations, income, employment status, and credit rating to determine whether they’d be able to abide by payment timelines. The lender would also pre-qualify the applicant on the basis of their financial standing.

Summing up

My First Texas Home is one of the most accessible programs for first time homebuyers in Texas. Texas also has other assistance programs for homeowners to help them buy the house of their dreams. Irrespective of the program they choose, it is important for buyers to compare them as this’d help them identify the best option according to their situation.

Weighing the Pros and Cons of Different Home Loans in Texas

Many first time homebuyers in Texas and other parts in the US rely on a home loan to secure their dream home. Though there is no dearth of home loan programs in Texas, choosing the one that best suits your requirement may not be easy, because as a first time buyer you may lack the knowledge and expertise to differentiate between different home loans. While some home loans may not require you to pay a down payment, others may offer lucrative interest rates. If you are confused about which home loan to pick, in this post we discuss the available loan options in Texas along with their pros and cons. Let’s take a look.

Texas home loan

1. VA Loan

The VA loan program is a federally backed housing program, guaranteed by the Department of Veteran Affairs. The program aims at assisting veterans of the American Armed services or their spouses in cases wherein the veteran dies of a service related cause to buy a first home or refinance a property. Goes without saying, the program being guaranteed by a federal body offers many benefits; however, you must learn the pros and cons before filing for a VA loan.

Pros

  • Zero down payment
  • Zero Private Mortgage Insurance (PMI)
  • Zero prepayment penalty
  • No minimum credit score requirements
  • Can be effectively used for purchasing a first home or refinancing
  • A nominal allowable debt-to-income ratio
  • Entertains bankruptcy and foreclosure cases

Cons

  • Requires an upfront funding fee
  • Only meant to purchase primary residences and not holiday homes
  • Loan limits and overlays

2. USDA Loan

USDA loans are offered under the USDA Rural Development Guaranteed Housing Loan Program. The program assists eligible applicants, mainly people with low to moderate income in securing their dream home in the rural regions of Texas and elsewhere in the US.

Pros

  • Upto cent percent financing
  • No restrictions on lot size or seller contributions
  • No prepayment penalty
  • Provision of gift funds to cover closing costs
  • Ideal for both purchase or refinance

Cons

  • Income restrictions depending on the median salary of people living in that area
  • Monthly Private Mortgage Insurance for Lifetime
  • Buyer is expected to occupy the home as primary residence
  • Only single families are eligible
  • Up to 3 weeks more processing time than other home loans
  • Strict guidelines on debt to income ratio and credit score

3. FHA Loan

Started during the great depression in the 1930s, the FHA loan program is one of the most affordable loan programs for low income groups to secure a home in Texas or elsewhere in the US. Under the FHA loan program, a loan always originates from a FHA approved lender to protect the interests of the homebuyer.

Pros

  • A minimum down payment of 3.5 percent of the total value of home
  • Seller can pay the entire amount of closing costs
  • Competitive interest rates than conventional loans
  • Offers flexibility when it comes to credit score and past financial record
  • Larger allowable income to debt ratios

Cons

  • Requires an upfront loan fee to be rolled with the loan amount
  • Lifetime MIP
  • Strict loan limits depending on the region

4. Conventional Loans

Conventional loans, as the name suggests, are offered by private lenders. A conventional loan can either be a fixed rate loan or a jumbo mortgage. For a fixed rate loan, the interest rates doesn’t fluctuate that much and therefore, it’s quite easy to predict the final amount that a person will pay at the end of the tenure. A jumbo loan, on the other hand, has a much higher rate of interest than fixed term mortgages. The reason, there are no minimum credit requirements to secure this type of loan, which is a risky proposition for many lenders. All in all, going for a conventional loan has its share of pros and cons.

Pros

  • A nominal down payment, usually lying in the range of 3-5 percent
  • PMI drops after some time
  • Lower monthly PMIs than FHA

Cons

  • Stringent credit score and debt to ratio requirements
  • Interest rates are more than federally backed counterparts such as VA, FHA and USDA
  • Seller can only pay a maximum of 6 percent in closing costs

Wrapping Up

Once you decide which loan type is best for you, the job is only half done. Securing any type of loan requires the applicant to meet guidelines specific to the loan program and complete necessary paperwork. Applying for a home loan, especially for the first time is a challenge for many. To get clarity on the process and increase your odds of your loan application going through, you must consult a Texas Home loan and Mortgage company. Mortgage companies have dedicated loan officers who can help you in each aspect of the home loan process from the start to finish.

5 Common Questions About USDA Loan Answered

USDA loan with zero down payment benefit is a popular home loan for home buyers with no military service history. Affordable payment plans, low interest rates, 100 percent financing and low-credit eligibility criteria are a few reasons that make USDA home loans a better option than most of the other conventional loans. If you are looking for an easy way to buy a home, put USDA above the other available options. In this post, we cover five common questions that home buyers usually ask before obtaining a USDA loan.

Question 1: What is the qualification criteria for a USDA loan?

The location of the property is the most important qualification criteria. The applicant can obtain a loan for a house that is within the USDA-eligible geographic area. Borrowers making up to 115% of the median income of the area where they want to purchase a home are eligible for the USDA loan. A family of four, for instance, planning to buy a home in Los Angeles area has the annual income limit of $98,200.

Question 2: Is it necessary that the property should be in good condition for USDA loan approval?

The condition of the property is another vital qualification criteria, if you are applying for USDA loan. The property needs to meet the minimum standards to get loan approval. An appraiser inspects the condition of the property to states the same in the appraisal report. The qualification standards are almost the same as for FHA loan.

Question 3: Can I purchase a manufactured home with USDA loan?

The buyers in most cases qualify for a USDA loan if they are purchasing a new manufactured home. There are, however, a few scenarios where the lender might approve USDA home loans for a pre-existing manufactured house. If the current owner of the house already has USDA loan on the property, you might be able to get a nod from the lender.

Question 4: Is there any minimum credit score required for a USDA loan?

Applicants with a credit score of 660 or above usually have the highest chances of getting USDA grants. The score was set to a minimum 640 on December 1, 2014, but it did not affect most of the applicants as many lenders already had the minimum score set at the same level. Borrowers with no traditional credit history are also eligible for USDA loan, provided they show their rental history, insurance payments and utility payment records.

Question 5: What is the term of the USDA loan program?

A guaranteed loan (guaranteed by the third party) earlier had a fixed payment tenure of 30 years, and borrowers were given the option to reduce the tenure to 15 years in September 2014. Direct loan has two repayment options for 33 years and 38 years. If the income of the borrower is above 60 percent of the annual monthly income, the USDA approves a tenure of 33 years. A USDA loan for manufactured home has a loan term of 30 years.

Last Few Words

Backed by the United States Department of Agriculture, USDA loan has several benefits such as low interest rates and zero-percent financing, which make it a more affordable choice over traditional loan options. More than 166,000 families availed the benefits of USDA loan in 2015. Before you apply for a USDA loan in Texas or any other state, make sure to have a thorough understanding of all the eligibility criteria, pros and cons of USDA loans process and payment plans, which makes it easier to qualify for the approval.