Both the Texas state government and U.S. federal government offer special programs for first-time home buyers who might be struggling to get the money together to make a purchase. Depending on your exact needs, you may be able to find a loan with cheap down payment requirements and low credit score minimums in addition to ones designed for specific demographic sets you might fit into like veterans or school teachers. If you want help throughout the process, SmartAsset’s SmartAdvisor matching tool has the ability to match you with up to three nearby financial advisors who can help find the best mortgage for you.
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.
|Pros||– No down payment required |
– Can be for the entire value of your new home
|Cons||– Larger down payment needed for those with a credit score below 580|
|Eligibility||– As little as a 3.5% down payment |
– Credit score must be 500 or above
|Best For||– 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 some of the lowest down payment options of any non-veteran specific mortgages on the market today. 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.
|Pros||– 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
|Cons||– The application process can be drawn out |
– Must pay a VA funding fee
|Eligibility||– 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
|Best For||– 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 applicable 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 2.4%. 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.
|Pros||– Can have up to 100% loan coverage of your home’s value|
|Cons||– If you qualify for a conventional mortgage, you can’t get one|
|Eligibility||– Cannot make more than 115% of the adjusted U.S. median income |
– Must purchase a home within an eligible rural area
|Best For||– Low-to-mid income Americans looking to live in a rural or suburban area|
In an effort to get home buyers, especially first-timers, 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. More specifically, 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 requirement, 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. So if your monthly income is above 115% of the current U.S. median income, you may have to go for a conventional mortgage or other typical loan.
Good Neighbor Next Door Program
|Pros||– Get a flat 50% discount on the value of your new home |
– After three years, you can sell the home and keep all equity
|Cons||– Not available to most people and in most areas |
– You’re required to live in the home for at least three years following purchase
|Eligibility||– Must be a police officer, firefighter, emergency medical technician or a pre-K to 12th grade teacher|
|Best For||– 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 these individuals are found less often. 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 below college 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
|Pros||– Very low down payment stipulations |
– Little to no credit needed for approval
– Many loan styles available
|Cons||– Could come with higher interest rates|
|Eligibility||– In some cases, no income requirements in underserved areas|
|Best For||– 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 offer a loan program geared towards 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 $7,500 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 a 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 variations, with terms available from 15 to 30 years.
|Pros||– Minimal credit score requirements |
– No down payment and no private mortgage insurance
– Cheap closing costs
|Cons||– Limited group of eligible borrowers|
|Eligibility||– Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts|
|Best For||– 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
|Pros||– Can get up to a 5% loan to help cover your down payment or closing costs |
– Relatively simple credit requirements
|Cons||– Limited applicant standards|
|Eligibility||– 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
|Best For||– Mid- to low-income borrowers|
The Texas Department of Housing and Community Affairs (TDHCA) handles not only the My First Texas Home program, but all of the state’s first-time home buyer offers. 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 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
|Pros||– Allows you to get a loan to build your own home|
|Cons||– Very labor intensive and time consuming |
– Must be under the supervision of a NOHP
|Eligibility||– Cannot have an annual household income higher than 60% of the state/local median family income |
– Need a “reasonable” credit history
|Best For||– 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 in the context of this program, your title will be an “owner-builder,” and you’re required to be under the supervision of a Nonprofit Owner-Builder Housing Provider, or NOHP, that’s 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, as 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. As far as the funds that come from this program, the max is $45,000, although you are not barred from seeking finances from other places as well.
Texas Mortgage Credit Certificate Program
|Pros||– Can get a 40% annual mortgage interest payment federal tax credit|
|Cons||– Tax credits are capped at $2,000|
|Eligibility||– Must be either a first-time home buyer, an eligible veteran or someone who hasn’t owned a home over the last three years|
|Best For||– Those looking to save a little extra on their federal taxes|
As of Feb. 1, 2019, 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 40% 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.
Tips & Resources for Your Mortgage Search
- If you’ve come away from this feeling comfortable with one of the loan options above, don’t halt your search just yet. Be sure to expel all of your mortgage choices prior to actually applying for your final choice. Doing so prematurely could put you in a bad place later in your loan’s term.
- As a first-time home buyer, you’ll undoubtedly be thrust into financial situations that you’ve simply never come across before. The SmartAsset financial advisor matching tool can pair you with advisors that are located near you that understand this process, and can walk you through every step along the way. Take a few minutes to fill out the survey, and you’ll be automatically set up with as many as three such financial advisors based on your answers.
Photo credit: ©iStock.com/venuestock, ©iStock.com/LightFieldStudios, ©iStock.com/zoranm