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Conventional loans are not explicitly government-backed loans, often packaged and sold by companies like Fannie Mae. This is the bread-and-butter loan type, although in the Fort Hood area its usage is dwafed by that of the VA loan.
- 5% minimum down payments
- Down payments under 20% require mortgage insurance
- You are bringing a 20% down payment
- If less than a 20% down payment, use if you are not eligible for a USDA or VA loan
The Federal Housing Administration (FHA) provides loan guarantees through Ginne Mae. These loans are in theory designed for lower income households, but in practice most middle class households qualify for the loan.
- Works with higher debt-to-income ratios.
- Minimum down payment is 3.5%
- MIP mortgage insurance is required on down payments less than 20%, and cannot be removed without refinancing to a new loan type
- You are not eligible for any other loan type
The VA loan is the most common loan type in the Fort Hood area, financing over half of all purchases in the area. The VA does not lend money but guarantees private lender loans through Ginnie Mae. The VA loan is available to service members, national guardsmen, and their spouses.
- 0% down payment
- No mortgage insurance
- Instead of mortgage insurance, there is a VA funding fee rolled into the loan
- Can only use the loan twice on concurrently owned homes
- USDA is not an option, you are using less than a 20% down payment, and you are VA eligible
The Texas Veterans Land Board (VLB) provides a loan program for Texas veterans. The Tex Vet loan is used in conjunction with a normal loan type (usually the VA loan), and can offer better interest rates. In reality, the interest rate is often the same, until 30%+ VA disability, at which point the interest rate drops 0.5% and becomes very attractive. It includes additional fees, so it is usually only worth considering if you have at least 30% VA disability. The program also has strict property requirements, so it is often best used on relatively new homes (2000s and up).
- Unmatched interest rates for Texas veterans with at least 30% VD disability
- Including an additional fee up front
- Only available to Texans
- You have 30%+ VA disability and are, at a minimum, a drivers license Texan
The United States Department of Agriculture guarantees loans in rural areas. Even though designed for rural areas, the outskirts of towns are often eligible, and it is worthwhile to see what areas in your market are eligible. For example, most of Nolanville, TX is currently USDA eligible, as is all of Kempner, Gatesville and Lampasas. The program is limited to first time home buyers, which is all the more reason to try to use it early.
- 0% minimum down payment
- Can only be used on qualified “rural” properties
- It is your first home purchase and the property qualifies for USDA loans
Instead of a lender, what if the seller loans you the money? That is owner financing. It is rare. Fewer than 10 owner financed deals were done in the Fort Hood area last year. This option is generally pursued by buyers who cannot get a traditional loan for some reason, often because of bad credit or an insufficient income history. Sellers take a risk offering owner financing, and therefore expect to be compensated with above market prices, interest rates and down payments. I do not recommend owner financing at all unless you are a real estate investor. If you are a traditional buyer looking for a home, it is best to wait until you can qualify for traditional loans instead of seeking owner financing.
- Works with all types of income and credit
- Highly negotiable and flexible loan type
- High down payments (10%+) are common
- High interest rates, often several %s over the other loan types, are common
- Instead of making your payments to an institutional lender, you are paying the seller, who may not have the best customer service
- Seller has the leverage, which can result in high and even above market sales prices
- You are very financially savvy and know what you are doing
Jumbo loans are defined as properties whose price is over the current Fannie Mae conforming loan limit, which is currently $453,100 in most parts of the United States, including all of Texas. Jumbo loans are very rare in the Fort Hood area due to the area’s affordability. In 2017, only 15 homes sold for over the loan limit out of 3562 MLS sales.
- Can use it on properties over $453,100
- Higher interest rates than loans for under the limit
- You are purchasing a property for more than $453,100
Skip the lender altogether and just write a check! That is one way to buy a home, used by nearly 20% of Fort Hood home buyers. When you ditch the lender, there are numerous closing costs you save. Combined with a quick close and no financing contingencies, your offer can be significantly more appealing to a seller than financed offers, giving you leverage when making an offer.
- Can outcompete buyers using financing
- Quick closes, some as quick as a single week
- No mortgage payment
- Very simple
- Your money is tied up in the house and can only be pulled out with a refinance or selling the home
- Could potentially earn a better return on your money in other instruments like investment real estate, stocks, etc.
You have the resources, are buying your forever home or have a strategy to keep the money working for you (e.g. refinancing)
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