Here is the short and skinny of the different loan types with a brief explanation of the benefits and restrictions. These loans apply to owner-occupied loans, meaning only homes you are intending to live in yourself. Investment homes will either be looking at an investor conventional loan (typically a 20% down payment) or alternative financing.
Conventional Loan. “Normal” mortgages, usually requiring a 5% down payment and typically requiring slightly higher credit scores and debt-to-income ratios than the other government subsidized loans types. Terms can be competitive with government subsidized loans, and, unlike FHA, you can lose the mortgage insurance premium after you achieve approximately 20% equity. Conventional loans also don’t have as restrictive requirements regarding the condition of the home that FHA and VA have.
FHA (Federal Housing Administration) Loan. If your debt-to-income ratios are a problem, the FHA loan opens doors. It also has a low downpayment requirement of 3.5%. It’s downside is that it comes with mortgage insurance premiums that last the lifetime of the loan. FHA also has one of the only loan types that allows you to finance repairs into the loan (the FHA 203k program).
VA (Veterans Affairs) Loan. Available to Soldiers and Veterans, this loan has no down payment, competitive rates, and no monthly insurance premium. It does have a one time VA funding fee (currently about 2.15% of the loan for first time VA loan users) that can be financed into the loan. Usually the right option for anyone eligible looking for a home. You can also use it more than once, for a maximum of two homes concurrently financed with VA lending.
Tex Vet. A Texas Veterans Land Board program available only to legal residents of Texas, this loan type is not a separate loan but can be used in conjunction with most of the other loan types, though most commonly with the VA loan. It has its own rates which can sometimes be competitive, however it also has an additional funding fee. For veterans with 30%+ disability, it also reduces the rate further by an additional 0.5%, making this loan usually the right option for Texan veterans with some VA disability.
USDA Loan. The home purchase program of the USDA is available for properties outside the city limits. Like the VA loan, it has a 0% down payment and competitive rates. It is usually reserved for first time home buyers, and your income cannot exceed a certain threshold. It is usually a great option for anyone looking at living on the edge of town or beyond.
Jumbo Loan. In Texas, most homes over $417,000 would require a Jumbo Loan. The strict definition is loan sizes too large to be bought by Fannie Mae or Freddie Mac on the secondary market. Lenders consider these higher risk, and will usually require 20-30% down payments and charge higher interest rates. Only a very few properties in Bell and Coryell Counties currently sell in this range, although you may have need for it closer to Austin.
Note that the VA, FHA, and USDA do not make loans themselves. Rather, they subsidize loans that normal banks, lenders and mortgage brokers make. You can’t go directly to any of these government departments for a loan.
Also, even if you meet the eligibility requirements for a loan, e.g. you are an eligible Service Member for the VA loan, you still must qualify with a good enough credit score (usually 620 and higher) and debt-to-income ratio.
Approximately 80% of loans in the Fort Hood area are VA loans due to the dominance of military and veterans in the community.
As a result, local lenders tend to be far more familiar with the VA loan program than national lenders or lenders located primarily in areas without a strong Service Member presence.
Click here for the local lenders I recommend considering when shopping for a loan!
Questions about specific circumstances or loans? Please call or email at the contact info below!
Brian E Adams, REALTOR®, GRI
StarPointe Realty Central Texas LLC
Licensed in the State of Texas