Getting a USDA Home Loan Approval Just Got Tougher

Ever since the USDA loan program was introduced in 1949, it has been one of the most popular home loan programs, primarily due to two reasons – zero down-payment requirement and  affordable monthly insurance premiums. The year 2015, however, saw some significant changes to the USDA home loan program. In this post, we discuss the changes and how they impact prospective home buyers. Let’s take a look. 

Stringent Credit Score Requirements

The minimum credit score requirement earlier was a bit more relaxed as compared to what it is now. After the recent changes for an automated USDA home loan approval, the minimum credit score requirement is 640. However, if there are any compensating factors that hint towards a potential increase in earnings (compensating factors such as a college degree, or a job training, or more), even scores ranging between 609 and 640 might be considered for a USDA home loan approval. In such cases, the lender would do a manual underwriting of the application.

Increased USDA Guarantee Fee

The USDA Rural Housing, in the year 2015, announced the revised guarantee fee and annual fee structure for the fiscal year 2016. According to the new fee structure, applicants need to pay an increased upfront fee of 2.75 percent on the loan amount, instead of the existing 2 percent. Lenders and borrowers submitting the loan guarantee request to the USDA post 30th September 2015 are subject to the increased fee of 2.75 percent. The annual fee (monthly PMI) of 0.5 percent remains unchanged.

Reduced Debt-to-Income Ratio

According to the updated USDA debt-to-income ratio requirement, the ratio cannot exceed 29 percent, if the credit score of an applicant is 640 or less. As the approval, usually takes place through the GUS, an automated underwriting system that holds all the parameters for approval, it is impossible to bypass the new debt-to-income ratio. However, with a 680 middle credit score, the debt-to-income ratio might be relaxed, and the loan is approved by a manual underwriting where the PITI ratio is between 29 and 32 percent, or if the total debt ratio is between 41 and 45 percent.

Last Few Words

With these changes to the USDA home loan program, it has become difficult for home buyers to get a USDA home loan approval. The borrowers of home loans, whether in Texas or some other parts of the US, who are ready to pay an increased guarantee fee of 2.75 percent may still not find themselves eligible for it due to the stricter guidelines. It is, therefore, advisable to keep your debts and credit score in check to ensure you are not denied a USDA home loan due to any of these reasons.

3 Most Beneficial Home Loans for Home Buyers in Texas

Despite the fact that there are several home loan options available for homebuyers in Texas, many fail to take the benefit of some of the most beneficial Texas home loan programs such as the VA home loans, FHA loans, USDA mortgage loans and more. Instead, they opt for the conventional loan programs that are less beneficial and have lesser features as compared to the ones just mentioned. One of the reasons for home buyers failing to take the benefit of these loans is their lack of awareness. In this blog post, we discuss the three most beneficial home loan types that buyers must consider at the time of applying for a home loan.

FHA loans

FHA loans are funded by private lenders, however, they are backed by the Federal Housing Authority. As the loans are insured by the government, lenders have relaxed qualification criteria for giving out these loans to home loan borrowers. Here are some of the benefits of taking an FHA home loan.

• Down payments as little as 3 percent as compared to the traditional loans that require a down payment between 5 to 10 percent.
• The Mortgage Insurance payments that borrowers need to make on a monthly basis are much less as compared to conventional loans.
• As opposed to the 3 percent allowable seller contribution to the closing costs in traditional loans, the FHA loans allow sellers to contribute 6 percent.

VA loans

Just like the FHA, VA loans are also guaranteed by the government. These loans, however, unlike the FHA loans are not offered to everyone. The VA loans are offered only to qualified active service duty members, veterans and their surviving spouses. The benefits of VA loans are as follows.

• There is no down payment applicable in VA loans.
• VA loan borrowers need not pay the private mortgage insurance (PMI) that FHA borrowers pay in the form of Mortgage Insurance Premium (MIP)
• The interest rates are not only lesser than the conventional loans, but they are less than FHA and USDA loans also.

USDA loans

The United States Department of Agriculture is the government organization that partners with lenders to assist rural home buyers get a Texas USDA home loan at competitive rates and easy to replay loan terms. Borrowers who apply for USDA loans get the following benefits.

• Just like the VA loans, USDA loans provide homebuyers 100 percent financing. In other words, they need to make a zero down payment at the time of buying a home.
• USDA loans do require borrowers to make an upfront premium that is 2 percent of the loan amount. The good news, however, is that borrowers can finance the upfront premium, as well.
• As these loans are backed by the USDA, certain borrowers with a blemished credit history may also apply for it. Similarly, borrowers with short credit history may use their rents, utility bill payments, and others to satisfy the credit based lending criteria of the lenders.

Last Few Words

Whether you are a first time home loan applicant or have already taken a home loan in the past, it is always advisable to consult a home loan consultant before applying for a home loan. Consultants can not only help you take a loan that best serves your requirement, but can also advise you against taking the ones that have hidden charges or unclear terms and conditions.  If you are looking for a home loan in Texas, there are more than few good home loan consultants who can help you with the same.

VA Home Loan: 5 Reasons Why it’s the First Choice of Veterans

Veteran Affairs Home Loans, or VA Home loans, are undoubtedly one of the most borrower-friendly loans available for qualified homebuyers. Only eligible veterans, servicemembers and their families are qualified for them. These loans are not provided by the U.S. Department of Veteran Affairs directly. The VA simply guarantees a part of the loan and private lenders, such as banks or mortgage companies, lend to eligible borrowers.  As these loans are backed by the VA, lenders are confident of extending a lot of benefits to the borrowers. On that note, let’s look into the various benefits of VA loans that help veterans purchase homes without breaking a sweat.

1. Competitive Interest Rates

VA loans come at attractive interest rates. The borrowing rates are less as compared to conventional loans and though the rate difference may not seem that big it can actually make a huge difference in terms of the interest one ends up paying over longer borrowing periods. For example, if you took a loan of $500,000 for 30 years at an interest rate that is 0.50 percent less than a conventional loan then you can save around $50,000 as interest cost.

2. Zero Down Payment Costs

One of the biggest advantage of VA loans is that they are zero down payment loans, that is, eligible borrowers don’t need to pay a single penny as down payment. This is possible because VA loans are backed by the VA board and as a portion of the loan is guaranteed by the VA, lenders are comfortable lending 100 percent of the cost of the property the borrower wants to buy.

3. Reduced Closing Costs

VA loans reduce the closing cost burden of borrowers by not allowing borrowers to pay some of the closing costs such as attorney fee, processing fee, documentation charges, loan costs and many more. The question that may cross your mind is “Who bears the cost if not the buyer?” Usually, the seller bears the closing costs. Even the broker may opt to bear a part of the closing costs.

4. Zero Private Mortgage Insurance

The FHA and conventional loans require borrowers to pay a monthly premium known as Zero Private Mortgage Insurance, if they are unable to pay the down payment that ranges somewhere between 3 to 5 percent. VA loans, on the other hand, are zero down payment loans and therefore, borrowers need not pay Private Mortgage Insurance premium.

5. Zero Prepayment Penalty

Most loan types require borrowers to pay a percentage of the outstanding loan as a prepayment penalty. The sooner one closes their loan, the higher the outstanding amount, and therefore, higher the prepayment penalty. However, VA loan borrowers need not worry about prepayment penalties as VA loan lenders do not levy any penalty for pre-closures.

Last Few Words

If you compare the veteran home loan with any other conventional loan in Texas or for that matter any other part of the US, you would find out that VA loan is far more beneficial. The reason , however, is simple -- it is a way of showing gratitude to those men in uniform who selflessly sacrificed several years of their lives to serve their motherland.

Your Spouse's Low Credit Score may Impact Your Homeownership Dream: Learn How

Ever heard that the credit score of your spouse may make or break your dream of owning a house? The moment you get married, the credit score of your spouse helps in determining your financial future, especially when you plan to purchase a house. Although marrying someone with a low credit score doesn’t affect your credit score, it affects the approval of home loans and the interest rate. Whether you live in Texas or any other state, your spouse's poor credit score always impacts the decision of buying a house.

Lenders check both of your credit scores during the loan approval process. Only one partner is eligible to apply for a mortgage, but in many cases, couples need both incomes to qualify for the home loan. Let’s look at a few factors that may prove to be a hurdle in loan approval.

Debt-to-income Ratio

Monthly payments made by an individual on credit accounts, mortgages and auto loans fall into debt category. The gross amount an individual receives before tax deduction helps in calculating the income. A low debt-to-income ratio of the spouse always increases the chances of mortgage approval for the new loan. Conventional loans have debt ratio capped at 36 percent while individuals with a debt ratio of up to 43 percent are eligible for FHA loans.

Bankruptcy and Foreclosure

If credit scores of a couple meet the lender’s requirement, it still doesn’t guarantee a mortgage approval. Lenders look for negative financial events such as short sale, foreclosure and bankruptcy in applicant’s credit history to determine eligibility. If one partner has a decent credit score with no negative history, but the other has announced bankruptcy in the past, the couple might face a problem in loan approval. The spouse, in such a scenario, needs to go beyond the seasoning period to be eligible for the mortgage.

Community Property States

Married individuals planning to buy a house in any of the nine community property states - Arizona, Nevada, Wisconsin, California, Texas, Louisiana, Idaho, New Mexico and Washington- need to share the credit profile of their spouses. Many lenders don’t worry about credit score of the non-purchasing spouse, but negative financial events such as bankruptcy might result in denial, even if the spouse isn’t taking the loan.

Married couples, who are planning to buy a house in near future, need to check their credit scores and history in advance. It is not possible to remove negative information from the report, but paying bills on time and a low income-debt ratio definitely improves the chances of qualifying for the loan.

Understanding the Pros and Cons of VA Loans: A Brief Guide

VA Loans have become increasingly sought home financing option among veterans and active servicemembers - thanks to easy qualification and down payment requirements. Guaranteed by the US Department of Veterans Affairs (VA), these flexible loans come with significant financial benefits that are not available in standard mortgage programs available for civilians. However, like every other loan option, there are certain pros and cons of VA loans, and therefore, wishful lenders need to be aware of both, before they file their application. Let’s take a look.

Pros of VA Loans

1. Zero Down Payments

The VA home mortgage requires no down payment; saving consumers minimum 20 percent of the loan value as compared to a traditional loan. The ultimate goal of this loan program is to help American Military Veterans or their spouses, in the event of their death from a service-related cause, to receive long-term financing. They need not pay any down payment in the lack of private financing.

2. No Prepayment Penalty

Conventional home loan programs may involve unfavorable terms such as prepayment penalties while VA loans don’t have such terms. As a home loan borrower, you can pay off your VA loan early without any fear of prepayment penalty.

3. No Closing Costs

Besides the basic loan origination fee, the VA home loan borrower need not pay any closing costs. Some of the closing costs that borrowers need not pay include lender document fees, recording fee above $17, transaction coordinator fee, notary and broker fees, and termite inspection fees. The seller of the home can pay all of the closing costs and prepaid penalties; amounting to six percent of the sales price.

Cons of VA Loans

1. Mandatory Funding Fee

VA Loans carry a mandatory funding fee that borrowers need to pay directly to the US Department of Veterans Affairs. The VA funding fee refers to a set fee that is charged on every purchase loan or refinance. This fee varies if the military veteran already has a VA loan and making down payments for the same. Borrowers with service-related disabilities need not pay this fee.

2. Limited Number of Sellers

There may be a few sellers ready to sell their homes to VA home loan borrowers. One of the reasons behind these limited number of sellers is the stringent regulations of the department of Veteran Affairs. Another reason is buyers who are refinancing with a VA Loan may choose not to pay any closing costs, thereby forcing sellers to pay for them.

3. Funding Fee Increase

If you use your eligibility for a VA loan more than once, be prepared for an increase in the funding fee. Although you can use and reuse your VA mortgage benefit, after the first time, doing so becomes dearer for you. Let us take an example to understand this better. If you are a military veteran who buys a home with zero down payment and uses your home loan benefit for the first time, your funding fee is 2.15 percent. The funding fee, however, will be 3.3 percent if you use your home loan benefit for the second time.

Conclusion

If you qualify for a VA home loan program, you need to understand that the advantages of this type of loan greatly outweigh its disadvantages. If you are yet unsure about applying for this smart mortgage, it is prudent to get in touch with mortgage experts. However, before you hire an expert, make sure that you conduct a thorough research to verify their capabilities.

USDA Rural Development Home Loans in Texas: A Brief Guide

USDA rural development home loans are specialty mortgage that provide a way for families from low to very low income groups, to own a home in any USDA-designated rural area. In simple words, this loan is for those who wish to buy a decent, safe, modest, sanitary house, and use it as their primary residence. This program provides reduces their risk of approved lenders, by providing them a 90 percent loan note guarantee on every loan they offer to an eligible homebuyer. You can get financial support through this direct loan program as part of the USDA rural development in Texas. In fact, this loan is available across all the US states.

Eligibility to Apply for a USDA Loan

To apply for a USDA loan, applicants need to fulfill the following criteria:

1. Must meet income eligibility

2. Must be a US citizen or a non-citizen national

3. Must occupy the property as their primary residence

4. No instances of getting debarred or suspended from participating in federal                      programs.

5. Have capacity to repay home loan

6. Should purchase a property that fulfills all the program criteria

7. Should be willing to meet all the credit obligations in a timely manner.

Before you apply for this loan program, don’t forget to check the eligibility requirements carefully.

Income Eligibility

The USDA rural development Texas has levied a maximum income limit requirement in order to ensure that only people, who are in the moderate or low-income group get the benefits of this loan program. Wealthy homebuyers are not eligible for this loan. The income limit for applicants should not exceed 115 percent of the median income in the area.

Property Qualification

Prior to zeroing in on a property, it is best to check if the area where you live or looking for a property falls under the USDA designated rural areas or not. According to this program, only properties that are located in the eligible areas qualify for a Single Family Housing Guaranteed loan. In addition, it is mandatory that borrowers must occupy your chosen property as their primary residence. To check whether or not the area you are looking to purchase a property qualifies for single family housing guaranteed loan program, visit the official USDA website.

Last Few Words

Due to requirements that we just talked about, USDA loans are not ideal for everyone. They typically work best for people who intend to buy a primary residence in the USDA-designated rural areas. With the help of this loan program, these borrowers get the required financial support to buy their dream home. Should you wish to learn more about USDA rural development home loans, feel free to connect with one of our mortgage consultants for a no-obligation consultation.

Learn About the Refinance Options for a Veteran Home Loan

Veterans Affairs (VA) mortgages or Veteran Home Loans in Texas, Ohio, or in any other state of the US, have proven to be a boon for military veterans and servicemen looking to buy a home or refinance their existing mortgages. Low mortgage rates and stringent underwriting standards have resulted in an increasing demand for VA loans from refinancers. Refinancing with a VA home loan enables homeowners to refinance up to 100 percent of the home’s value, without having to pay for mortgage insurance. Let’s take a close look at what else is in store.

Low Interest Rate

Military homeowners who have an existing VA Home Loan can trim down their monthly payments or shorten their loan term through a streamline refinance program, better known as the Interest Rate Reduction Refinance Loan (IRRRL). This loan option is great for current VA loan holders who wish to realize significant savings; getting benefitted from lower interest rates.

One of the biggest merits of refinancing through the IRRRL is that it features little paperwork and often need little-to-no costs out of your pocket. Borrowers can easily roll closing costs into their total loan amount. A VA Loan also does not need a credit check or appraisal for refinances under IRRRL.

Refinancing your existing VA home loan through this program ensures borrowers to pay a lower funding fee that is typically 0.5 percent of the total loan amount. You can even add this to your loan balance. The IRRRL permits borrowers refinancing up to 100 percent of the home’s value.

Cash-Out Refinance

Cash-Out Refinance is an option for those with a current VA or conventional loan; looking to take benefit of their home’s equity to access cash for home improvements, pay off debt, emergencies, and other purposes. If you are a veteran with two mortgages and wish to refinance them into one loan, this refinancing option allows you to pay off first and second loans with a newly sanctioned loan. Maximum refinancers permit the homeowner to refinance up to 100 percent of the home’s value to pay off the old mortgages. Cash-Out Refinance is available to any qualified veteran homeowner, regardless of their availing an FHA, Conventional or USDA loan.

Remember

If you are a veteran and don’t have a VA home loan, you have the choice to refinance your conventional mortgage into a VA loan. If you apply to refinance a non-VA Loan into a VA loan program, the Department of Veterans Affairs considers it to be a cash-out refinance. The biggest advantage of this refinancing option is that it allows the homeowner to fully refinance the home’s value.

Conclusion

In most cases, refinancing a standard mortgage into a VA loan can indeed save you hundreds of dollars every month, allowing you to quickly recover the associated costs of refinancing. Besides, refinancing into a fixed rate loan from an adjustable-rate mortgage (ARM) gives you stability and surety concerning your monthly VA loan payments. If you wish to learn more, it is advisable to get in touch with a competent mortgage consultant.