The Important Things To Know About USDA Loans In Texas

All You Need To Know About Texas USDA Loans

If you have not yet heard of the USDA loan, you are not the only one. In many ways, this most advantageous form of financial aid has not been greatly publicized, until today.

In the following article, we will provide you with all you need to know about how USDA loans work.

The USDA Loan is available to most regions of the United States and offers zero-down mortgage opportunities. These loans come from private lenders with guarantees from the USDA. And are primarily used to provide homebuyers in rural areas a chance to purchase homes in less industrialized areas.

These USDA loans function in the same way as a government-backed mortgage. To gain the loan a homebuyer will work with a USDA lender to become preapproved before putting down an offer, going through the loan appraisal, getting the lender underwriting and closing the deal.

While the 0-down offer is probably the most enticing thing about this deal, there are some other benefits here too. Following are 10 other facts and benefits that you may not have known about.

1) Most of The U.S. Is Eligible

A USDA loan can be purchased for financing housing in just about any “rural area” and many people will be surprised what constitutes such a zone. You might think this means living miles from civilization, but actually any region with a population of under 35,000 could fall into this category. As a matter of fact, most of the US (97%) is eligible for this loan.

2) USDA Loans Are Only For Primary Residences

But, you are looking for that sweet little home away from home in the countryside? Sorry, the USDA loan is offered only to those homebuyers looking to finance their primary residence. This means that the home you would like to mortgage with a USDA loan will have to be the place where you reside all the time.

3) Many Property Types Are Eligible

When you were here rural, you may get the idea of a ranch or sprawling Southern Estate or anything with endless acreage. That’s not usually the case, USDA loans are in place for just about any size of the dwelling and include new constructions and single-family homes as well, the opportunities are truly extensive.

4) You Can Make Too Much Money To Qualify For A USDA Loan

The USDA loans will not be catering to all budgets either. Your household income levels will play an important role in deciding your eligibility for this. As a rule of thumb, a USDA loan will only be for those making within 115% of the areas average income.

Lenders will be looking at the household income although there will be some deductions that qualify for subtraction.

5) The Loan Program Encompasses Two Separate Types

The term “USDA Loan actually encompasses a couple of different loan types. Here is what you need to know about these very different programs.

  • USDA Direct Loan. This type of loan provides you with funds coming from the USDA directly. To qualify for this type of support, you must have an income equal to 50 to 80% of the local average. The terms can also be much longer than the average 30 years, up to 38 years in some cases. Plus, it comes with special interests rates that make the monthly payment plan far more attainable. Those looking for a USDA Direct Loan will need to contact their Rural Development office.
  • USDA Guaranteed Loan. The USDA Guaranteed Loan functions very much like any other loan backed by the government, like FHA and VA Loans. This type of loan must be processed through valid USDA lenders and uses the household income numbers to decide who is eligible. Because these loans are guaranteed by the USDA, they are a little more stringent in their policies. For example, the borrower must have a credit score of 640.

6) Even If You Have Had A Foreclosure Or Bankruptcy, You Can Still Qualify For A USDA Loan

If you have hit a rough road financially, you can expect the USDA to be very understanding. There is a chance for those recovering from foreclosure and bankruptcy. After a Chapter 7 Bankruptcy or a foreclosure, the USDA will ask for a three-year waiting period before eligibility is restored.

7) They Have Some Of The Lowest Mortgage Insurance Fees

When you request a loan through the regular mortgage process, you will need to pay up roughly 20% down as well as an additional monthly fee for “Private Mortgage Insurance”. This PMI protects the interests of the investment and can be anywhere from 0.5% to 1% of the entire loan value. In the traditional framework, this can be a very expensive payment and a $200,000 loan will cost as much as $200 a month in just PMI.

The USDA offers a much more rewarding scenario. The upfront fee is a mere 1% of the total loan amount and the annual insurance will come out to 0.35% of the loan. This means that on the same loan described above, the insurance payments would be $58.

8) Flexible Credit Guidelines

The USDA has not made any specific credit score too low, but you can expect that your USDA-approved lender will require a score of 640 or more. This is the number held by the USDA’s Guaranteed Underwriting System (GUS) and is used to determine credit risk. If your score is below 640, your loan would have to be underwritten manually, if your lender decides to grant you the loan.

9) They Allow You To Use A Co-borrower

The USDA also allows a co-borrower to sign on with you and promise to continue paying the loan if you will not be able to. There is no requirement to use such a co-borrower, but if in the event that you have one it can improve certain requirements and make you seem more creditworthy. You should note that the borrower should be someone who lives with you and the same income, credit and debt guidelines that apply to you will apply to them as well.

10) They Have No Pre-payment Penalty

Another important benefit is the lack of any penalty for prepayment. While it does seem unlikely that anyone would make larger payments on their loan than necessary, there are some situations in which the lender may require the borrower to pay a penalty if they have managed to pay their loan off before a specific timeframe. The good news, this is not a stipulation you will have to face when taking out a USDA loan.

Before making a decision, let one of the experts at Mortgage Lending Texas help you find out exactly what loan is best for you.  Feel free to contact us or call us today!

The Complete Guide To Buying A Texas Home You Can Afford

9 Steps To Buying A Home You Can Afford In Texas

Buying a home will be, for most of us, the single biggest purchase we ever make. The scale alone makes it a complex process; you need to take steps to ensure you end up in a house you can really afford. This nine-step checklist is a good framework to use:

1. Check Your Credit And Income

Checking your credit score is the best place to start budgeting for your house. Your score will dictate the interest rate you get on a mortgage; the higher the score, the lower the rate. Good credit can take a healthy bite out of your monthly mortgage payments. If your score looks bad, you might want to consider delaying your home purchase and taking some time to improve it.

When you start thinking about how large a mortgage payment you can afford, look at how much money you’re currently taking home. Personal finance experts suggest that you should consider 30 percent of your monthly income as an absolute maximum for your mortgage payment.

This is also the time to start thinking about how long you plan on staying in your new home. You’ll save money if you prepare yourself for a long stay – 10 years or more. Selling this home later will oblige you to turn over a hefty chunk of the selling price (typically six percent) over to your Realtor. If you only stay in the house a few years before selling it, this sales cost can easily offset any growth in the value of the property. Remember that moving is often a significant expense, too.

2. Build Up A Strong Down Payment

Modern home financing opens up some options that will allow you to buy even if you don’t have the cash for a down payment. Your finances might not be ready for purchasing a home if you can’t put together a down payment of at least 10 percent, though.

The ideal down payment to shoot for is 20 percent. This is a magic number because your lender will require you to buy private mortgage insurance if your down payment is less. PMI gives the bank an added layer of protection if you can’t pay off the mortgage. Depending on your down payment and your credit score, PMI can inflate your mortgage’s total cost by 0.3 to 1.5 percent.

3. Try To Expect The Unexpected

Fitting your mortgage payments into your monthly budget is a good start to planning outsmarts home purchase. Remember that other expenses come along with owning a home! You’ll have to pay for insurance, property tax, and maintenance expenses. The addition to your monthly expenses can run into the hundreds of dollars.

Consider a full range of known and potential expenses when deciding whether or not you’re ready to buy. Look past the mortgage. Do you have the resources to handle taxes, renovations, closing costs, maintenance, inflation, and fees?

4. Get Your Lender To Pre-Approve You For A Mortgage

By this point, if your finances are ready for buying a home, you should have a pretty good idea of how much you can afford to spend. You want to resist any temptation to exceed your limits when you start looking at houses.

If you start the process by talking to a lender, you can go into it with a pre-qualification letter that sets out your financial capacity. This is a handy tool for you, potential sellers, and real estate agents. Having a pre-qualification letter makes you a more attractive buyer if a seller is considering multiple offers.

Applying for pre-qualification means picking out a lender and being fairly committed to borrowing from them. Speak to multiple banks and mortgage brokers before you finalize your decision.

Remember that there’s no penalty for spending less than you’re approved for. In the long run, you’ll be doing yourself a favor if you buy a home that doesn’t use up every last penny of the financing you’ve lined up.

5. Pick The Right Agent

The best real estate agent to work with is one who understands your goals and has the right skills and experience to work toward them. Be aware that some agents specialize and you need a suitable one. If you’re buying a primary home and looking to raise a family, you don’t need the expertise of an agent who specializes in investment property.

Making a good match with an agent can pay off big in the long run. One scheme that’s worth considering is signing a contract that adds client satisfaction bonuses into your agent’s compensation scheme. This can make a dramatic difference in the level of service you receive, and working with an agent who prioritizes satisfaction will make the whole buying experience easier for you.

6. Add Your Home Needs To Your Price Range

The previous steps should have provided you with a pretty clear budget for your home. Now is the time to start combining your financial resources with your specific needs. Where do you want to live? How much space do you need? Do you have school zone preferences?

Thanks to internet tools, you can do far more preliminary research than ever before. You can get a very good grasp on your local housing market before you ever set foot on a piece of for-sale property. The more effort you’re willing to put into the research process, the better your results are likely to be.

7. Check Floor Plans Before Visiting

You need to be aware of the potential drawbacks of modern, online house-hunting, too. Photos are a huge part of selling modern homes – and photos can be deceptive. Look out for camera trickery that can make rooms look bigger than they are. Are the blinds always closed in the photos posted online? Chances are, the views are underwhelming.

The most honest depiction of a prospective home you’ll find online is the floor plan. The goal is to find a place that you can make into a home, so you should study floor plans and make sure that the layout of a home that interests you is really suitable.

8. Don’t Step Outside Your Comfort Zone When Putting In An Offer

Buying a home can be an exciting, emotional process, but you always need to keep a clear sight of the financial stakes. Hang onto your budget and stay rational about what you’re spending your money on. If you develop an interest in a broadly appealing house, you may find yourself in a bidding war. Don’t overextend yourself and offer more than you can afford in the mistaken belief that any given house is “the one” for you.

By the same token, don’t settle for a home because the buying process has exhausted you. You’re going to miss out on some great homes and pass up some stinkers before you strike the right deal.

9. Close Wisely

After you make an offer and the seller accepts it, the sale will be contingent on the closing process. This means securing your mortgage and passing all the necessary inspections, including your own walk-through of the property.

Don’t get tripped up by the many expenses involved in closing! Plan to pay for appraisals, attorneys, transfer taxes, inspections, and title insurance. As a rule of thumb, expect closing costs to be roughly five percent of your total mortgage cost. Your specific closing requirements will vary according to the state you’re buying in. Review the details with your agent and/or lawyer so you know what to expect.

Before making a decision, let one of the experts at Mortgage Lending Texas help you find out exactly what loan is best for you.  Feel free to contact us or call us today! 

Types Of Texas Mortgages: Which One Is Perfect For You?

All You Need To Know About The Types Of Mortgages In Texas

Did you realize that there are various types of mortgages available? In this article, we will discuss the most common options along with the benefits and drawbacks to each.

When it comes to purchasing a house, you may think the only option is a fixed-rate mortgage for 30 years. However, this is not true as there are various mortgage options available. Below is a basic discussion of the 16 types of mortgages – some very common and others quite rare.

1. The Fixed-Rate Mortgage

The fixed-rate mortgage is potentially the most popular and commonly used alternative. Having a set interest rate means one has predictable monthly payments. The payment schedule can be spread over a term ranging from 15 to 30 years. It should be noted that shorter terms are gaining popularity.

  • 30-Year Mortgage. Approximately 90% of all homebuyers in 2016 opted for the standard fixed-rate, 30-year mortgage. A longer repayment period makes the payments more affordable and can help buyers organize more affordable monthly payments for expensive properties.
  • 20-Year Mortgage. Similar to the 30-year mortgage option, the 20-year mortgage offers fixed rates resulting in consistent monthly payments. Most homebuyers opt to split the difference between short and long terms allowing people to pay off their mortgage sooner. Typically, the 20-year mortgage option has a lower interest rate than the popular 30-year mortgage.
  • 15-Year Mortgage. Contrary to popular belief, the payment schedule for a 15-year mortgage is not more costly than the rates for a 30-year mortgage. This type of mortgage offers lower interest rates making them affordable as a short-term mortgage. You would be able to pay off the mortgage in a shorter period without an increase in interest rates.

2. The Adjustable-Rate Mortgage (ARM)

The adjustable-rate mortgage allows for fluctuations in the interest rate. The interest rate will differ according to the type of loan you choose. If interest rates are decreasing, the ARM allows homebuyers to take advantage of this without any refinancing. However, if the interest rates rise, ARMs are surprisingly expensive asking for high payments.

  • The Variable Rate Mortgage. Variable-rate mortgages are merely another form of adjustable-rate mortgages. The common factor is that variable-rate mortgages have an adjustment in the rates throughout the loan term. Rates will often change according to the third party’s index rate and the lender’s margin. The rates are adjusted on a set payment schedule regardless of whether payments are made every month, every year or on a longer period. It also caps the maximum amount of interest you will need to pay.
  • The Hybrid ARM. A hybrid adjustable-rate mortgage involves a fixed initial rate for a set period of time. The most common hybrids include three years of fixed interest followed by adjustable interest rates. The 5/1 option is similar to the 3/1 option with the difference being a five-year introduction period instead of three years.
  • The Option ARM. The option adjustable-rate mortgage option provides borrowers a four monthly payment alterative. The mortgage includes a set minimum payment amount, a 15-year or 30-year amortizing payment schedule, and interest-only payments. In most cases, the option ARM is utilized to achieve a much larger loan than the borrower would typically qualify for.

3. The Balloon Mortgage

Balloon mortgages are paid over a short term, mostly 10 years or less. For the majority of the set term, the balloon mortgage requires low payments and sometimes interest only. At the end of the set term, the full balance of the loan needs to be paid. This can place borrowers in a risky position.

4. The Interest-Only Mortgage

The interest-only mortgage offers borrowers an alternative for a lower monthly repayment schedule over a set period. After this, the individual will need to start paying the principal amount. Balloon mortgages are technically a form of interest-only mortgages; however, it does not require any lump sum payments of principal amounts.

Instead of asking for a lump sum payment, the mortgage allows borrowers to pay interest-only payments over a set period. After this, the individual is required to “make up for lost time” through the payment of more than the principal amount using a standard fixed-rate mortgage schedule.

5. The Reverse Mortgage

The reverse mortgage option is reserved for senior citizens exclusively. Reverse mortgages offer homeowners access to the property’s equity in a loan which can be set up for monthly repayments, withdrawn in a lump sum, or receiving a line of credit.

The reverse mortgage is only available when you need to leave the property. If you leave, even if it is before death, you are required to repay the mortgage amount using the proceeds of the loan. This can reduce the equity on which most seniors depend to fund long-term expenses.

6. The Combination Mortgage

A combination mortgage is useful to avoid any private mortgage insurance or PMI if you cannot pay 20% of the property value. On average, borrowers take out a mortgage for approximately 80% of the property value with another 20% payment on the home value. This is known as an 80/20 combination mortgage loan.

In many cases, the combination mortgage will be more costly than others regarding interest rates. However, if you review mortgage options, the PMI is also highly costly. If you are able to pay off the high-rate 20% quickly, then you can emerge with a beneficial combination mortgage.

7. The Government-Backed Mortgage

To encourage people to purchase homes, the federal government offers borrowers mortgages backed by government authorities. Should the borrower default on the mortgage, a government-backed mortgage provides coverage of the lender’s losses from the government entity.

  • The FHA Loan. Federal Housing Administration can back loans and are ideal for first-time homeowners or people with a bad credit score. This type of loan is commonly used for cooperative housing projects, single-family homes, some multi-family houses, and condominiums.
  • The USDA Loan. Rural homeownership is highly encouraged using this loan because the US Department of Agriculture offers a specialized mortgage option. The payment schedule is low for people purchasing homes in rural areas.
  • The VA Loan. The US Department for Veterans Affairs backs the zero-down mortgage option for people in active duty, on the national guard, a reserve for government service, and veteran members of all armed forces.
  • The Indian Home Loan Guarantee. HUD mortgages are available to people of Native American descent who are earning a low income. This also includes Hawaiians and Native Alaskans.
  • The State And Local Programs. If you have problems paying a mortgage down payment or have a bad credit score, then it is recommended that you review the different state and local government programs.

8. The Second Mortgage

If you own a house and have equity built on it, you can opt for the home equity loan (also known as a second mortgage). This is another type of mortgage loan secured by the house’s current equity. A further mortgage option is the home equity line of credit. This alternative is a revolving mortgage loan depends on the property’s equity.

Final Words On The Matter

The type of mortgage chosen is a significant consideration when buying a house. The good news is you have various mortgage options available. In most cases, it is recommended that you focus on the fees and interest rates when comparing loans.

Before making a decision, let one of the experts at Mortgage Lending Texas help you find out exactly what loan is best for you.  Feel free to contact us or call us today!