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.

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Different Ways a Good Faith Estimate can Help you Buy a Home

Borrowing a home loan is a financial decision that can influence the rest of your life in one way or another. Though there are mechanisms in place to help guide you through the journey, you will be required to take several tough decisions up till the closing date. One way you can get help as a home buyers is through a good faith estimate (GFE). As a mortgage applicant, your lender is liable to provide you with a GFE that contains all the information related to the mortgage, including how much the loan is going to cost at the given rate. Having cognizance of your Good Faith Estimate helps you make fair mortgage comparisons from different lenders and get a better understanding of your loan and APR. This post highlights specific ways in which a good faith estimate benefits homebuyers.

1. Limits Ambiguity

The GFE was established to protect buyers from having to pay for any unlisted costs and responsibilities incurred at the time of closing, and most importantly, to avoid any unexpected financial obligations. Through the GFE, buyers are well aware of all costs involved throughout the process before agreeing to anything. This, in turn, limits the ambiguity of costs related to a particular loan and help buyers make informed decisions.

2. Helps you Stay within your Budget

More often than not, home buyers have bruising experiences with home loans due to lack of a clear understanding of the monthly costs involved in their home mortgage agreement. The GFEs help buyers know exactly how much of their income will be going towards loan repayment and other associated fees every month. Getting a comprehensive breakdown of monthly costs helps borrowers have a realistic viewpoint of how the loan is going to affect their budget. If the monthly payments are more than their budget, people get the option to look for other houses available at a lower price.

3. Empowers you Better Evaluate your Credit & Finances

As the GFE process involves an in-depth analysis of a borrower’s credit and financial status, having the evaluation done by more than one lender helps you understand your financial stability before committing to anything. If the credit report is the reason for inflated interest rates, you can always come back after six months with a better credit status. This benefit is usually overlooked by many borrowers but makes for a great deal in the form of reduced interest rates.

Conclusion

Getting good faith estimates from different lenders helps home buyers invest more efficiently in a new property. After you apply for a home loan, you receive an itemized list of all associated costs in the form of a GFE form within three business days. People who are willing to put their money in the market should leverage the benefits of GFEs to cover themselves. Seek assistance from a professional loan consultant who can guide you through the process to help you choose the right kind of loan program with best interest rate.