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We understand that figuring out which loan is right for you can be hard, confusing, and even frustrating. That is why we created a simple yet detailed overview of all of the loan programs we offer. You will learn how they work, how to qualify, and the pros and cons of each loan. Below you will find FHA loans, USDA Loans, ARM Loans, Conventional Loans, CRA Loans, and TSAHC Loans. Read all about how loans work, what kind of loans there are, and find out which one is right for you. 

Loan Programs Explained

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Home2Home

Home2Home Program Explained

How The Home2Home Program Works

     The Home2Home® Program is a unique two-step offering designed to help individuals reduce the stress and worry associated with contingent home sale. This program allows you to qualify for a new primary home purchase even while your departure primary residence is listed for sale. By providing a short-term purchase-money loan, you can buy a new home before selling your existing one, which means you won't have to miss out on your new home while you are waiting for your current primary residence to sell. The program also allows you to use a trusted Realtor of your choice, enabling you to sell your home on the open market for the best possible price instead of dealing with instant buyer companies that potentially offer less. The Home2Home® Program's short-term purchase-money loan is refinanced into a permanent loan once your departure residence is sold, which provides a seamless transition into your new home. With the Home2Home® Program, you can confidently purchase your dream home and avoid the contingent sale stress that many people experience.

How to Qualify for the Home2Home Program

     To be eligible for Home2Home program, borrowers must meet the following lending guidelines:

  • Minimum credit score of 700.

  • Minimum down payment of 5%.

  • Maximum debt ratio can be no more than 45%.

  • Once the departure residence has sold, the borrower will convert the Home2Homepurchase money loan to a permanent loan thru a rate and term refinance with Thrive Mortgage.

  • Borrowers will be qualified based on their ability to receive final rate/term refinance approval.

Pros and Cons of the Home2Home Program

  Pros:

  • Close on new home before your old home is sold.

  • Do not have to include current mortgage payment in debt ratio calculation.

  • No escrows for taxes and insurance on the Home2Home loan for up to 6 months.

  • Qualifying with Interest only payments on short term purchase loan.

  • Borrower can sign a Non-Contingent (NC) contract to the seller &/or builder of their
    new home.

  • Current interest rate for interest only term is 9%

  Cons:

  • Another loan option might suit you better.

  • 5% minimum down payment which is higher than other loans.

  • Requires a high credit score.

  • Upon maturity of short term purchase 6 month note, if not refinanced into a perm loan, interest rate will increase to 18%

Home2Home
FHA Loans

FHA Loans

FHA Loans Explained

How FHA Loans Work

     FHA loans come in 15-year and 30-year terms with fixed interest rates. The agency’s flexible underwriting standards are designed to help give borrowers who might not qualify for private mortgages a chance to become homeowners. There’s one catch: Borrowers must pay FHA mortgage insurance, which is designed to protect the lender from a loss if the borrower defaults. Mortgage insurance is required on most loans when borrowers put down less than 20 percent. All FHA loans require the borrower to pay two mortgage insurance premiums:

  • Upfront mortgage insurance premium: 1.75 percent of the loan amount, paid when the borrower gets the loan; this premium can be rolled into the loan amount.

  • Annual mortgage insurance premiums: 0.45 percent to 1.05 percent, depending on the loan term (15 years versus 30 years), the loan amount and the initial loan-to-value ratio, or LTV; this premium amount is divided by 12 and paid monthly.

     If you were to borrow $150,000 with an FHA loan, for example, your upfront mortgage insurance premium would be $2,625 and your annual premium would range from $675 ($56.25 per month) to $1,575 ($131.25 per month), depending on the term.

     FHA mortgage insurance premiums will be canceled after 11 years for most borrowers if they financed 90 percent or less of the property’s value — in other words, for those who put at least 10 percent down and stay current with their monthly mortgage payments. Loans with an initial LTV ratio greater than 90 percent will carry insurance until the mortgage is fully repaid.

How to Qualify for an FHA Loan

     To be eligible for an FHA loan, borrowers must meet the following lending guidelines:

  • Have a FICO score of 500 to 579 with 10 percent down, or a FICO score of 580 or higher with 3.5 percent down.

  • Have verifiable employment history for the last two years.

  • Have verifiable income through pay stubs, federal tax returns and bank statements.

  • Use the loan to finance a primary residence.

  • Have a front-end debt ratio (monthly mortgage payments) of no more than 31 percent of gross monthly income.

  • Have a back-end debt ratio (mortgage plus all monthly debt payments) of no more than 43 percent of gross monthly income (lenders could allow a ratio up to 50-52 percent, in some cases).

  • Wait one-two years before applying for the loan after bankruptcy, or three years after foreclosure.

Pros and Cons of FHA Loans

  Pros:

  • You can have lower FICO Score requirements.

  • You can make a lower down payment.

  • Easier qualifying with debt-to-income ratio.

  • You can stop renting earlier.

  • Easier loan/process for home ownership.

  Cons:

  • You won’t be able to avoid mortgage insurance.

  • You could pay more.

  • Can only purchase one home with a FHA loan at a time.

USDA Loans

USDA Loans Explained

How USDA Loans Work

     A USDA home loan is a $0 Down payment mortgage for low-and moderate-income homebuyers in largely rural areas. USDA loans are part of a national program created by the U.S. Department of Agriculture to help create loans for first-time homebuyers or people who don’t meet conventional mortgage requirements. They are sometimes referred to as rural development or RD loans. The benefits of a USDA mortgage include no need for a down payment and looser credit requirements. Some drawbacks are that the property must be located in a USDA-approved area and borrowers cannot exceed income limits.

 

How to Qualify 

     The USDA doesn’t impose a blanket credit score requirement for all borrowers, but typically, USDA-approved lenders look for a score of at least 640 (Some lenders might allow a score of 580 if the buyer has reserves or fewer debts).

​​     The USDA loan program is geared toward low and moderate-income homebuyers. For this reason, applicants can’t earn more than certain income limits, which vary by metro area and family size. In more expensive areas, the income ceiling is higher. You can check income limits for your county and household size using the same property eligibility tool on the USDA website. Below is the maximum combined household income requirements of popular counties in Texas, if the county is not listed in the below section, please click here.

USDA mortgages come with two fees that are specific to the program:

  • 1) Upfront guarantee fee: The upfront guarantee fee this fiscal year is 1 percent of the loan amount. This fee can often be rolled into the mortgage instead of paying it out of pocket.

  • 2) Monthly PMI (mortgage insurance) fee: The annual fee is typically 0.35 percent of the loan amount.

  Both of these fees are charged to the borrower. These fees keep USDA loans subsidy-neutral, which means that any losses incurred by the program are paid for by these fees instead of taxpayer dollars. Depending on the needs of the program, the fees can change annually.

 

Pros and cons of USDA loans

     The benefits of a USDA home loan include less stringent credit score guidelines and no down payment requirement. There is also no formal loan limit, unlike FHA loans. This can be a great program for homebuyers on a budget who are flexible about where they live. The cons mostly have to do with restrictions, like those on where you can buy or how much your family can make.

  Pros

  • $0 down payment required.

  • Lenient credit score requirements.

  • Closing costs can be rolled into the mortgage if appraisal allows or seller incentives can be used.

  • Available for both purchasing property and refinancing.

  • Often come with low, fixed interest rates.

  • Lower annual/monthly fee in terms of comparison to a FHA Loan.

  Cons

  • Strict guidelines around where property is located.

  • Must use home for primary residence.

  • Limited income requirements.

  • Upfront and monthly mortgage insurance fees.

USDA Loans offered for new homes | Kendall Homes
USDA Loans

ARM Loans

ARM Loans Explained

How Adjustable-Rate Mortgage (ARM) Loans work? 

     The term adjustable-rate mortgage (ARM) refers to a home loan with a variable interest rate. With an ARM, the initial interest rate is fixed for a period of time. After that, the interest rate applied on the outstanding balance resets periodically, at yearly or even monthly intervals. With an ARM, you’ll start with a low fixed interest rate for a set period of time - usually 5, 7 or 10 years. After that, your interest rate may change every 6 months or once a year, fluctuating with the market.

That means your monthly mortgage payment could go up or down twice a year. But your rate will never increase more than 5 percent of the original rate.

 

How to qualify

  • General minimum 3.5% - 5% down payment.

  • Minimum qualifying FICO® Score of 580 - 620

  • Debt-to-income ratio (DTI) of no more than 50%.

  • Maximum loan-to-value ratio (LTV) of 95%.

 

Pros and Cons of ARM Loans

  Pros

     Saves you Money: Not only will your monthly payment be lower than most traditional fixed-rate mortgages, you may also be able to put more down toward your principal balance. Just ensure your lender doesn't charge you a prepayment fee if you do.

     Ideal for short-term borrowing: ARMs are great for people who want to finance a short-term purchase, such as a starter home. Or you may want to borrow using an ARM to finance the purchase of a home that you intend to flip. This allows you to pay lower monthly payments until you decide to sell again.

Let's put money aside for other goals: More money in your pocket with an ARM also means you have more in your pocket to put toward savings or other goals, such as a vacation or a new car.

     No need to refinance: Unlike fixed-rate borrowers, you won't have to make a trip to the bank or your lender to refinance when interest rates drop. That's because you're probably already getting the best deal available.

  Cons

     Payments may increase due to rate hikes: One of the major cons of ARMs is that the interest rate will change. This means that if market conditions lead to a rate hike, you'll end up spending more on your monthly mortgage payment. And that can put a dent in your monthly budget.

     Not as predictable as fixed-rate mortgages: ARMs may offer you flexibility but they don't provide you with any predictability as fixed-rate loans do. Borrowers with fixed-rate loans know what their payments will be throughout the life of the loan because the interest rate never changes. But because the rate changes with ARMs, you'll have to keep juggling your budget with every rate change.

     Complicated: These mortgages can often be very complicated to understand, even for the most seasoned borrower. There are various features that come with these loans that you should be aware of before you sign your mortgage contracts, such as caps, indexes, and margins.

ARM Loans
Conventional Loans

Conventional Loans

Conventional Loans Explained

How Conventional Loans Work

     In short, a conventional mortgage is not guaranteed by the government. Instead, it’s available and guaranteed through the private sector. Conventional mortgages account for a large portion of purchases and refinances.

How to qualify

     To be approved for any type of mortgage, you’ll need to meet the lender’s requirements, which include parameters around your credit score, level of debt, income and more. Conventional loans tend to have stricter requirements than government-backed loans.

1. Credit score

     If you think about being approved for a conventional loan as a set of stairs, the first step would be your credit score. Mortgage lenders require a minimum score of 640 to qualify for a conventional loan, but that’s the minimum only. To secure the lowest interest rate and the best deal, you’ll want a much better score, generally 680 or higher; the higher your score, the lower your interest rate.

2. Debt-to-income (DTI) ratio

     Moving up those stairs, the next piece of information a lender will scrutinize is your debt-to-income (DTI) ratio. Your DTI ratio factors in other debts you have to pay each month, such as auto loans, student loans and credit card debt. Most lenders don’t want this ratio to exceed 43 percent, although some might make an exception and allow up to 50 percent. Others, still, might limit it to 36 percent.

3. Down payment

     Unlike some government-insured loans, a lender isn’t going to give you 100 percent of a home’s purchase price in a conventional loan — you’ll need to be able to make a down payment. Many fixed-rate conventional loans for a primary residence (not a second home or investment property) allow for a down payment as small as 3 percent or 5 percent. If you’re taking out a 3-percent conventional loan to buy a house that costs $350,000, for example, you’ll need to put at least $10,500 down.

4. Private mortgage insurance (PMI)

     The ability to put down just 3 percent is an appealing benefit of conventional mortgages, but that small down payment comes with a drawback: private mortgage insurance (PMI). Because you didn’t make a 20 percent down payment, PMI helps protect the lender in case you default. Until you accumulate 20 percent equity in the home — either by paying down your mortgage or upping your home’s value — you’ll need to pay the additional cost of PMI.

5. Loan size

     The final step on the path toward a conventional loan is how much money you need to actually borrow. For conforming conventional loans, the Federal Housing Finance Agency (FHFA) sets limits each year. These vary based on where the property is located. In the majority of the U.S., the limit for 2023 is $726,200. Higher-priced areas have limits of $1,089,300. Anything larger, and you’ll need to look for a jumbo loan.

Pros and Cons of Conventional Loans

Pros

  • Cancellable mortgage insurance: One of the big pros of a conventional loan is that you won’t have to deal with paying for PMI for the duration of the mortgage. Once you have 20 percent equity in the home, you can request to cancel PMI. To compare, if you had a 30-year FHA loan and made a down payment of less than 10 percent, you’d be paying those insurance premiums for the full three decades (unless you sell the home or refinance into a conventional loan).

  • Flexible repayment timelines: When you’re browsing conventional loans, the most common loan terms you’ll find are 15-year and 30-year payback periods. However, some lenders have conventional loan programs, known as flexible-term or flex-term loans, that allow you to choose from a wider range of time frames, typically eight years to 29 years.

  • More financing and property types: While government-backed mortgage programs tend to come with the owner-occupied requirement (in other words, you have to live in the home), conventional loans are available for second homes and investment properties. Plus, the fact that jumbo loans fall into the conventional loan bucket means that highly-qualified candidates can manage to borrow high sums of money.

  • Escrowing taxes and insurance: Buyers that put 20 percent or more down, have the option to escrow taxes and insurance instead of paying monthly. This gives them the option of paying annually outside of the mortgage.

Cons

  • PMI: Although you can cancel PMI on a conventional loan once you accumulate 20 percent equity in your home, the fact remains you’ll still need to pay the premiums if you put down less than 20 percent. This adds to your monthly mortgage payment.

  • Rigid requirements: One of the biggest downsides to a conventional loan is the requirement that the borrower has a credit score of at least 620. (Some lenders ask for even higher.) If your credit could use some work, a conventional loan won’t be an option for you until you improve your score. Likewise, lenders tend to stick to that 43 percent DTI ratio limit with a conventional loan, which might shut you out of getting one. Some other loan types, in contrast, have more wiggle room with the DTI ratio.

  • Scrutiny of past hardship: If you have a foreclosure on your record, you’ll need to wait a longer period of time to apply for another conventional loan compared to other types of mortgages. For conventional loans, the timeline is seven years removed from the foreclosure; for government loans, it’s two years or three years.

CRA Loans

CRA Loans Explained

How CRA Loans Work (Community Reinvestment Act)

     Financial institutions use CRA loans to help meet the needs of the communities in which they do business, including low and moderate income neighborhoods. CRA loans offer 100% financing, $0 Down and no PMI. They are the most affordable loan if one meets the requirements. CRA loans can be difficult to be approved for, due to the high requirements of credit scores and low DTI percentages. 

  Pros

  • No PMI.

  • $0 Down

  • 100% financing on mortgage.

How to Qualify

  • Minimum 640 credit score.

  • Low to moderate income areas no income limit.

  • Middle to upper income areas with properties in an over 50% minority area max income is $159,600.

  • Debt to income ratio up to 43%, 640 credit score or 45%, 680 credit score.

CRA Loan
TSAHC Loan

TSAHC Loans

TSAHC Loans Explained

How TSAHC Loans Work

     At the Texas State Affordable Housing Corporation (TSAHC), they help Texans buy a home for themselves and their families. They are a nonprofit organization that was created by the Texas Legislature to help Texans achieve their dream of homeownership.  The Homes Sweet Texas Home Loan Program offers home loans and down payment assistance to low and moderate-income families.

 

Before You Go Further

     The first step to see if you qualify is to take the online Eligibility Quiz. It takes only a few minutes and you don’t need special paperwork. The quiz will let you know if you meet the program requirements and the types of assistance you qualify for. To qualify, you must have a credit score of 620 and meet certain income requirements.

What is a Down Payment on a House?

     When you buy a house, you usually have to also make a down payment. The down payment requirement is equal to a percentage of the cost of the property and can vary based on the type of loan you receive. For example, if a home costs $100,000 and a down payment of 5% is required, you must pay $5,000 at the time of purchase. 

Down Payment Assistance (DPA): What Is It? 

     If you are eligible for the programs, TSAHC will provide you with a mortgage loan and funding to use for your down payment. You can choose to receive the down payment assistance as a grant (which does not have to be repaid) or a deferred forgivable second lien loan (which only has to be repaid if you sell or refinance within three years). If you’re eligible, you can essentially receive free money to help you buy a home. 

How Much Do You Have to Put Down on a House?

     The amount of your down payment depends on a few things, including your income, your loan type, the amount of TSAHC assistance that you choose, the cost of the home, and how much you want to borrow. The larger your down payment, the smaller your monthly mortgage payment will be. The smaller your down payment, the larger your monthly mortgage payment. Your lender will help you figure out which TSAHC assistance option to choose and how much you need to put down on your house.  

Two Home Buyer Programs: Which is Right for You?

     Your lender will also help you determine which TSAHC program you qualify for.  Both programs offer the same down payment assistance options. 

“Homes for Texas Heroes” Program

If you’re in a hero profession, this is the home loan program for you. Hero professions include:

  • Professional educators, which includes the following full-time positions in a public school district: school teachers, teacher aides, school librarians, school counselors, and school nurses 

  • Police officers and public security officers 

  • Firefighters and EMS personnel

  • Veterans or active military

  • Correction officers and juvenile corrections officers

  • Nursing faculty and allied health faculty

“Home Sweet Texas” Home Loan Program

     If you don’t qualify under one of the professions listed above, this is the best program for you. 

What Does the Homes Sweet Texas Home Loan Program Offer? The Homes Sweet Texas Home Loan Program is designed to help low and moderate-income Texans achieve the dream of homeownership. If you qualify, TSAHC will provide you with a mortgage loan and funding to use for your down payment. You can choose to receive the down payment assistance as a grant (which does not have to be repaid) or a deferred forgivable second lien loan (which only has to be repaid if you sell or refinance within three years). If you’re eligible, you can essentially receive free money to help you buy a home.

This information was pulled from the following websites for educational purposes only. www.quickenloans.com www.investopedia.com www.bankrate.com www.tsahc.org Kendall Homes does not assume any responsibility for any errors or omissions in the information contained. Information is meant for educational purposes only and should be verified by the reader for accuracy as the content above is subject to change without notice or could be considered incorrect. Each person has a different financial situation which uniquely applies to them, information is based on general standards to our best knowledge.

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