Both the Texas state government and the federal government offer special programs for first-time home buyers. These programs may allow you to get a loan with low down payment and credit score requirements. There are also programs designed for specific demographics, such as veterans or school teachers. If you want professional help during the home buying process, SmartAsset’s financial advisor matching tool can help you in finding an advisor who serves your area.
Federal First-Time Home Buyer Programs
Before we get to the programs available only to Texas residents, we’ll first touch on several national home buyer programs that anyone can access. It’s a good idea to consider both federal and state programs when you conduct your mortgage search.
|– No down payment required
– Can be for the entire value of your new home
|– Larger down payment needed for those with a credit score below 580
|– As little as a 3.5% down payment
– Credit score must be 500 or above
|– Those who don’t have a great credit history and money for a down payment
FHA loans, which many typical lenders include as part of their mortgage portfolio, is actually handled in conjunction with the Federal Housing Administration. These loans offer the lowest down payment options available (save for those programs offered specifically to veterans). In fact, just a 3.5% down payment is expected when you get one of these loans. For reference, a conventional mortgage typically calls for a 20% down payment.
The 3.5% down payment only applies to applicants who have a FICO® credit score of 580 or higher. Should you fall below that threshold, the FHA will require you to pay a 10% down payment, which still beats what most mortgages in Texas can offer.
|– Can have up to 100% loan coverage of your home’s value
– Usually come with lower closing costs than conventional loans
– No private mortgage insurance
|– The application process can be drawn out
– Must pay a VA funding fee
|– Must be a current or former military member, or a member’s spouse or another eligible beneficiary
– Must have a credit score of 620 or higher
|– Veterans with little monthly income and savings for a comfortable down payment
Veterans, current members of the U.S. military, their spouses and other eligible beneficiaries can apply for a VA mortgage through the Department of Veterans Affairs. These are perfect for first-time home buyers who lack the capital for a normal down payment but have the monthly income to take on a mortgage. So as long as your new home’s value falls within the standards of a VA loan, you can have as much as 100% of the price covered by your loan.
As great as this sounds, VA loans do come paired with a VA funding fee that can range anywhere from 1.25% to 3.3%. You could think of this as a substitute down payment, but even if you do, it’s still less than the vast majority of other options. On top of this, you need a minimum FICO® credit score of about 620 for approval under most individual lenders, although the VA doesn’t technically enforce a credit score minimum.
Outside of this funding fee, you won’t have to pay much else at the time of your purchase. Closing costs are forever present, but the VA has lowered these beneath what most other options charge. Also, because these loans are insured by the VA, buyers won’t have to get private mortgage insurance to cover themselves in case of a default.
|– Can have up to 100% loan coverage of your home’s value
|– If you qualify for a conventional mortgage, you can’t get one
|– Adjusted household income can’t surpass 115% of the area median income for most USDA loans
– Must purchase a home within an eligible rural area
|– Low-to-mid-income Americans looking to live in a rural or suburban area
In an effort to get home buyers to move into rural, semi-rural and certain suburban areas around the U.S., the United States Department of Agriculture developed the USDA loan program. These apply to single-family homes that are located in approved areas.
Similar to their VA loan counterparts, USDA loans do not come with minimum down payment requirements, allowing you to finance up to 100% of your new home’s value. Should your FICO® credit score land too low, your down payment may be pushed to 10% of your home’s value, though.
The only factor that could hold you back from getting approved for a USDA loan is having too high of an income. To qualify for a common USDA loan through the guaranteed loan program, your household income generally can’t exceed 115% of the median income for the area you wish to live in.
Good Neighbor Next Door Program
|– Get a flat 50% discount on the value of your new home
– After three years, you can sell the home and keep all equity
|– Not available to most people and in most areas
– You’re required to live in the home for at least three years following purchase
|– Must be a police officer, firefighter, emergency medical technician or a pre-K to 12th grade teacher
|– Teachers or emergency personnel with little in savings
The Good Neighbor Next Door Program was specifically put in place to attract pre-K through 12th-grade teachers and emergency personnel to areas around the U.S where there is a need for such professionals. The federal government has identified these various places and deemed them “revitalization areas.” So if you’re a police officer, firefighter, emergency medical technician or school teacher, you can use this program to get a house in one of these areas for 50% off.
While this program is obviously beneficial, you don’t physically obtain your mortgage through it. Instead, your discount will apply through the program, and you can pay cash or get a conventional, FHA or VA mortgage to cover the balance. You will, however, be required by law to leave this home as your primary residence for no less than three years, at which point you can sell it and keep the profits.
Fannie Mae/Freddie Mac
|– Very low down payment stipulations
– Little to no credit needed for approval
– Many loan styles available
|– Could come with higher interest rates
|– In some cases, no income requirements in underserved areas
|– Anyone who is looking for a low down payment loan option, but doesn’t qualify for any of the above options
The federal government created Freddie Mac and Fannie Mae to help build stability in the mortgage market, and each offered a loan program geared toward first-time home buyers.
Fannie Mae’s HomeReady® mortgage requires a lower down payment than an FHA loan at 3%. So on a $250,000 home, that would be a $10,000 down payment, which should be doable for most applicants. Just make sure that your monthly income doesn’t cross the U.S. median by much, if at all, and your credit score is at least 620. While you will be required to pay for private mortgage insurance, you can cancel once you have accrued 20% equity in your home.
The Home Possible: 95% LTV and Home Possible Advantage: 97% LTV mortgages from Freddie Mac are very similar to Fannie Mae’s offering, just with some minor tweaks. The first of the above loans is available in 15- to 30-year fixed-rate terms, and also as a 5/1, 5/5, 7/1 or 10/1 adjustable-rate mortgage (ARM). But the Home Possible Advantage loan comes in just a fixed-rate variation, with terms available from 15 to 30 years.
|– Minimal credit score requirements
– No down payment and no private mortgage insurance
– Cheap closing costs
|– Limited group of eligible borrowers
|– Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts
|– Native American veterans that lack money for a down payment
As an alternative to traditional VA loans, the Department of Veterans Affairs created the Native American Direct Loan (NADL) just for Native American veterans and their spouses. These mortgages feature a 0% down payment requirement and do not call for private mortgage insurance, as they’re backed by the VA. You’ll also receive lower closing costs than most mortgage alternatives to even further ease the initial financial stress. NADLs are extremely forgiving when it comes to credit score requirements for approval as well.
Unfortunately, you cannot use these loans to purchase, build or renovate just any home. To remain eligible, the house has to be situated on allotted lands, Alaska Native corporations, Pacific Island territories or federally recognized trusts.
Texas First-Time Home Buyer Programs
My First Texas Home
|– Can get up to a 5% loan to help cover your down payment or closing costs
– Relatively simple credit requirements
|– Limited applicant standards
|– Only for first-time home buyers or people who haven’t owned a home in the last three years
– Need at least a credit score of 620
|– Mid- to low-income borrowers
The Texas Department of Housing and Community Affairs (TDHCA) handles all of the state’s first-time home buyer offers, including My Choice Texas Home program and My First Texas Home. This program is a 30-year fixed-rate loan with relatively easy-to-meet credit stipulations, along with decent interest rates.
It’s also paired with a down payment and closing cost assistance that could be worth as much as 5% of your new home’s value. So while this is definitely preferential for first-time home buyers, those who haven’t been a homeowner within the last three years are also eligible.
Texas Bootstrap Loan Program
|– Allows you to get a loan to build your own home
|– Low-income families with very few homebuying options
|– Cannot have an annual household income higher than 60% of the state/local median family income
– Need a “reasonable” credit history
|– Low-income families with very little homebuying options
The Texas Bootstrap Loan Program is one of the more distinctive first-time home buyer programs around the country. Rather than help you purchase a home, this offer quite literally has you build your own home. Within the context of this program, your title will be an “owner-builder.” You’re required to be under the supervision of a Nonprofit Owner-Builder Housing Provider, or NOHP, that is certified by Texas. The purpose of this relationship is to make sure you know what you’re doing and that you are following all laws.
Should you enter this program, you’re required to do at least 65% of the labor associated with the building. The NOHP, family members, friends and volunteers are allowed to fill the gap. Your total debt-to-income ratio can’t exceed 45%, and you have to have lived in Texas for at least six months before applying. The maximum benefit of the program is $45,000 on a 30-year, zero-interest term. However, you are not barred from seeking finances from other places as well.
Texas Mortgage Credit Certificate Program
|– Can get a 20% annual mortgage interest payment federal tax credit
|– Tax credits are capped at $2,000
|– Must be either a first-time home buyer, an eligible veteran or someone who hasn’t owned a home over the last three years
|– Those looking to save a little extra on their federal taxes
This program is only being offered in combination with the My First Texas Home program. Similar to programs many states offer, the Texas Mortgage Credit Certificate Program allows borrowers to save on their federal income taxes by applying as much as 20% of their mortgage interest payments as a tax credit. However, this is limited to a maximum of $2,000 per year.
To get in on this beneficial program, you only need to have not been a homeowner during the last three years. First-time home buyers and veterans who meet specific requirements don’t have to abide by this, though.
Buying your first home is one of the most exciting things you can do. The process can be a bit overwhelming for those who haven’t done it before, but both the Texas state government and the federal government offer first-time homebuyer programs that make things simpler. As with any major financial decision, though, do your research before actually putting down any of your own money.
- As a first-time home buyer, you’ll undoubtedly be thrust into financial situations that you’ve simply never come across before. That’s why it may be a good idea to speak with a financial professional. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Before you fall in love with a home outside of your price range, you’ll want to determine what you can actually afford. SmartAsset’s home affordability calculator is a great place to start.
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