Home Loan Options for Texas Buyers

Your loan affects your down payment, your monthly payment and how strong your offer looks to a seller. Earlier in my career I was a loan officer and mortgage broker, so I know these programs from the lender's side of the desk.

Common Loan Types

Conventional. Not government-insured; most follow Fannie Mae or Freddie Mac guidelines. Some programs allow as little as 3 percent down for qualified buyers, and less than 20 percent down generally means private mortgage insurance (PMI).
FHA. Insured by the Federal Housing Administration, part of HUD. FHA offers flexible credit guidelines and a low down payment, but carries upfront and annual mortgage insurance premiums, and the home must meet FHA property standards.
VA. Guaranteed by the Department of Veterans Affairs for eligible veterans, service members and certain surviving spouses. Many VA buyers need no down payment and pay no monthly mortgage insurance, though a funding fee usually applies unless you're exempt.
USDA. USDA's guaranteed loan program can offer no-down-payment financing in eligible areas, subject to household income limits. USDA publishes an eligibility map you can check by address.
Jumbo. A loan above the conforming limit the Federal Housing Finance Agency sets each year, often requiring stronger credit, a larger down payment and more reserves.

Fixed-Rate vs. Adjustable-Rate

A fixed-rate mortgage keeps the same interest rate for the life of the loan, so principal and interest never change. Shorter terms usually mean higher payments but less total interest.

An adjustable-rate mortgage (ARM) has a rate fixed for an initial period, then adjusts on a set schedule within caps listed in your loan documents. It can fit if you expect to sell or refinance before the first adjustment; ask your lender to show you the highest payment the caps allow.

Texas Down Payment Assistance

Two state organizations offer programs that help eligible buyers with down payment and closing costs: the Texas State Affordable Housing Corporation (TSAHC) and the Texas Department of Housing and Community Affairs (TDHCA). Both work through participating lenders.

Depending on the program, assistance may come as a grant or as a second loan that is deferred or forgiven under certain conditions.
Some programs offer a mortgage credit certificate, a federal income tax credit tied to your mortgage interest.
Eligibility usually depends on income, purchase price, credit and, for some programs, first-time buyer status or profession.

Some cities and counties have their own programs. Terms change, so confirm details with a participating lender.

How Mortgage Insurance Works

Mortgage insurance protects the lender but lets many buyers put down less than 20 percent. On a conventional loan for your primary residence, the federal Homeowners Protection Act gives you a path to remove PMI:

By request: you can ask your servicer in writing to cancel PMI once your balance is scheduled to reach 80 percent of the home's original value, or reaches it sooner through extra payments. You'll need a good payment history and may need to show the value hasn't declined.
Automatically: PMI terminates when your balance is scheduled to reach 78 percent of the original value, as long as you're current on payments.

"Original value" generally means the lower of the purchase price or the appraised value when you bought. FHA mortgage insurance follows different rules and, depending on your down payment, can last many years or the life of the loan.

Questions to Ask a Lender

Which programs do I qualify for, and which would you recommend?
What will my full monthly payment be, including taxes, insurance and mortgage insurance?
How much cash will I need at closing?
How long can I lock my rate, and what happens if closing is delayed?
Do you participate in TSAHC or TDHCA programs?

After you apply, the lender must give you a Loan Estimate within three business days. Compare Loan Estimates from more than one lender to make sure your terms are competitive.

This is general information, not lending or tax advice. Confirm details with a licensed mortgage lender and, for tax questions, a CPA.

Talk Through Your Options

Not sure which loan fits? Contact Tarus and I'll help you prepare questions for your lender. Next: Choosing Your Buyer's Agent.