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Why Does Your Agent Want You to Get Pre-Qualified?

Jun 2nd, 2011
by Mike.
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Have you ever tried to visit a home for sale on the market only to be told by a real estate agent that they won’t show you the property until you are pre-qualified for a mortgage?  You might see this as a time-consuming obstacle or an unnecessary intrusion into your finances; however, there are a number of good reasons to support this requirement.

First, many sellers do not want their house being shown to someone who is not serious about buying it. Look at it from the current homeowner’s perspective.  The seller has to clean the house and clear their family out and on a Sunday for someone who might be “just looking”.  Furthermore, there is a potential security risk in showing a home to someone whom the seller and, in reality, the buyer’s agent know little about.  Many sellers are uncomfortable with this.

Even if someone does like the home and is ready to make an offer, a seller will not seriously consider any offer from a buyer who has not been pre-qualified.  They simply cannot accept the risk of taking their home off the market while a buyer figures out if they can even qualify for a loan to buy that house.

Another good reason to get pre-qualified is to see how much of a home a buyer can qualify for and on what terms. The pre-qualification process involves taking some basic information, running a credit report, as well as determining the potential borrower’s debt ratios.  Typically, a buyer can be pre-qualified within a couple of hours from the beginning of the process. This procedure will often uncover unknown credit report items that can be addressed in advance to enable the buyer to obtain a better rate and thus, more of a loan.  It will also allow the buyer to shop around for a lender so that valuable time is not wasted while they are under contract.  Lenders can also advise on what types of programs might be available in certain areas.

Lastly, there is the question of etiquette. Believe it or not, there are people out there who look at houses as a hobby, with no true intention of buying.  It is important to remember that a real estate agent’s time is extremely valuable.  Realtors work on straight commission and often give up many hours of personal family time on the weekends to show property; many times to people who will never buy a home.  Very simply, it is disrespectful to monopolize an agent’s time if a buyer is not serious enough to answer a few questions for a lender a couple of hours before going to look at property.

Ultimately, getting pre-qualified benefits all parties involved and represents a small time investment given the magnitude of a home purchase.   The pre-qualification indicates to the seller a serious intent to buy; the buyer and buyer’s agent know the buyer’s financial background and purchase limitations; and the buyer will already have “one foot in the door” with their home purchase.   It is a win-win for everyone!

Realities and Myths of First Time Homebuyer Programs

May 2nd, 2011
by Mike.
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Houston First-Time Homebuyer Home Loan SpecialistsAs a Loan Officer who works with all of the major down payment assistance, bond, and first-time homebuyer programs in the Houston area, I speak with prospective home buyers every day who are searching for programs that will assist them financially with their home purchase. This article will separate the myths from the realities of these programs and provide some guidance on who are the best candidates for these programs.

First, I want to address what these programs are not. They are not programs to help people with poor payment histories buy a home. They are also not designed for buyers who otherwise have the resources to purchase a home but want to use taxpayer money to do so. Lastly, it is highly unlikely that a homebuyer will be able to buy a home with no money of their own in the transaction.

That being said, let’s look at what these programs can offer.

Most programs designed for first-time homebuyers are funded with block grants from the U.S. Department of Housing and Urban Development. And thus, they are targeted to low to moderate income homebuyers. The income restrictions will vary from state to state and metro area to metro area. In the Houston area, most programs have income limits ranging from $55,000 to $75,000 depending on family size. Often, income limits are higher if the buyer purchases in a targeted revitalization zone; a low to moderate income area the local government is working to turn around.

While a first-time homebuyer program might indicate that a buyer can purchase with as little as $500 down, in reality, it will typically take $1,200 – $1,500 or more to get to the point where assistance is available. A buyer will need to have sufficient resources to cover an earnest money deposit at the time they make an offer (usually $500- $1,000), the cost of an appraisal ($375- $450), and the cost of a home inspection ($300-$500). The exception to this rule would be when a borrower uses a USDA or VA loan in conjunction with a first-time homebuyer program. These scenarios can often result in a buyer getting a rebate at closing for costs already incurred during the home purchase process.

The biggest fallacy with first-time homebuyer programs is the belief that a borrower with poor credit can purchase a home. While this may have been the case several years ago, virtually every program available today will require a credit score of 620 or higher. Most loans are ultimately made by private lenders (not the providers of the programs), and these lenders risk their loans not being insurable by government or private mortgage insurers if established credit underwriting practices are not followed. In the current economic environment, this risk is simply not worth taking to lenders.

The ideal candidate for a homebuyer program is a consumer who has a good credit history and who has some funds of their own to invest in the purchase. Evidence shows that buyers who have “skin in the game” are less likely to default than those who do not. They would also have a stable income with no more than 45% of their gross monthly income going to cover monthly debt payments, including their prospective mortgage.

First-time homebuyer programs can be an excellent supplement that helps an otherwise creditworthy buyer achieve the dream of homeownership. However, no lender or government agency wants to set up a buyer for failure, or allocate limited taxpayer resources on a borrower who has not demonstrated the financial responsibility necessary to own a home.

FHA to Lower Allowable Seller Contributions in 2011

Mar 28th, 2011
by Mike.
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In 2010, the Federal Housing Administration restructured the mortgage insurance and lending guidelines surrounding mortgage loans insured by the agency. These changes included minimum credit score requirements for low down payment loans, new up-front and annual mortgage insurance premiums, and a change in the net worth requirements for lenders offering FHA loans. One element that was noticeably absent was a change in the amount a seller can pay toward buyer closing costs. It looks like the day of reckoning is coming.

The FHA had announced in 2010 its intention to decrease allowable seller contributions on insured loans from the current 6% down to 3% in order to bring the loan program in line with conventional loan guidelines. Seller contributions allow buyers to contribute less to a transaction, and enable many first-time and low to moderate income borrowers to buy a home. Thus, this policy is essential to maintaining the recovery in the fragile housing market. As an example, a buyer considering a $150,000 home purchase might have to absorb between $5,000 and $7,500 in closing costs in addition to the FHA’s minimum required 3.5% down payment. Currently the seller could pitch in for all of those closing costs from their sale proceeds but, under the proposal, they would be limited to $4,500.

Real estate agents, builders, and mortgage lenders have voiced concern over this new policy on the heels of other changes to government housing policies. Now, it looks as though the FHA is starting to cave, at least a little bit, in this fight. It appears the agency is going to allow some higher seller-paid closing costs, perhaps 4-5% on smaller loans to allow low-to-moderate income buyers the ability to purchase a home. At the same time, they would limit contributions for higher loan amounts to the previously proposed 3%.

This should salvage most transactions as 6% contributions on higher dollar mortgages are less common than for lower-priced homes. This will, however, hurt some entry leveler buyers in areas that have a higher entry price point, but are not considered by HUD to be a high cost market with higher loan limits.

Ultimately, this proposal is another attempt to unravel the Federal government’s support of the housing market. The FHA will continue to play a vital role as government agencies Fannie Mae and Freddie Mac are phased out in some manner, leaving the private markets in charge of most mortgage lending. Until then, it behooves many home buyers with low down payment resources to buy now or they may be forever holding their peace.

Some Last-Minute Tax Tips for Houston Homeowners

Mar 21st, 2011
by Mike.
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If you haven’t yet pressed “Enter” to send your 2010 tax return to the IRS, it is probably a good idea to make sure that you have taken advantage of all the tax benefits available to Houston homeowners.

If you didn’t already do the math on itemizing, it is a worthwhile exercise. Almost 40% of homeowners who are eligible to take the home mortgage interest deduction do not. In many cases the math justifies this decision, but in others it doesn’t. It is best to use a tax planning software that computes your tax liability both ways to make sure you aren’t paying more than you need to in taxes. Remember, if you are in the 28% tax bracket, every dollar your taxable income is reduced by mortgage interest you’ve paid cuts your tax liability by 28 cents.

If you purchased a home last year, you may be able to deduct “points” paid on your mortgage, considering these points typically represent pre-paid interest. To qualify, the points must represent a percentage of your loan amount and be reflected on your HUD Settlement Statement. Even points paid by the seller may be deductible if your cost basis is adjusted. Now, qualifying points cannot represent costs for genuine third party costs such as appraisal or survey, or prepaid expenses such as tax or insurance escrows. Only points paid on your primary residence are eligible to be deducted in the year paid, points on second homes must be deducted over the life of the loan. If you refinanced your home, your points are generally deductible over the life of your loan.

If your joint income is $100,000 or less, or you file single and make $50,000 or less, your mortgage insurance premiums paid may be deductible. Single, annual, or lump-sum mortgage insurance premiums are fully deductible through the end of this year. The deductibility is phased out at higher income levels. The amount of these premiums should be reflected in the 1099 you receive from your mortgage lender.

If you consummated a mortgage modification, lost your home through foreclosure, or sold your home through a short sale in 2010, there are special tax rules that apply to you. Normally, any time all or a portion of your debt is forgiven or eliminated, you are taxed on this amount – which the IRS calls Cancellation of Debt Income. The Mortgage Debt Forgiveness Act of 2007 provides a waiver of these rules through 2012. If you are facing a distressed sale situation right now, it is in your interest to get the transaction completed as soon as possible. These circumstances can often takes months, or even over a year to close, and you might be pushing the 2010 date.

Lastly, make sure to set your alarm to remind you to protest your property tax appraisal with your local taxing authority. Declining home values carry the subtle benefit of lower property taxes IF you do the leg work. Appraisal district values somehow seem to stay high even when market values fall. Go figure!

Your home provides you with a place to live, serves as a method of forced savings, and can even deliver a myriad of tax benefits for the homeowner who knows how to take advantage of them.

Houston Investor Mortgage Loans in Today’s Tight Underwriting Environment

Feb 28th, 2011
by Mike.
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Houston Mortgage Rental Invesment LoansThe Federal Housing Finance Agency is reporting that US home prices have fallen 14.9% since they reached their peak in April of 2007. Houston mortgage rates have increased less than 1% from their all-time lows during 2010. Underwriting standards continue to be more restrictive each passing day leaving a large percentage of would-be buyers unapproved. Combined, these factors have created a “near-perfect” storm for investors who buy and hold rental properties. So what do Houston investors face when they finally decide to make an offer on a foreclosure, bank REO, or short-sale property?

Loans to investors are available through a variety of sources: Local banks, national banks, non-recourse lenders, mortgage brokers and bankers, hard money lenders, and owner financing. Each has their distinct advantages and underwriting requirements.

Down payment and reserves

In general, an investor needs a minimum of 20% “skin in the game” down payment to begin the process. Additionally, a minimum of six months cash-equivalent reserves must be documented to cover mortgage, tax, and insurance payments after closing. This condition is required of all rental properties in the investor’s portfolio. Therefore, if an investor has three mortgaged rentals with an average P.I.T.I. (principle, interest, taxes, and insurance) of $1200 per month, they will need to prove reserves of $21,600 ($1200 x 3 rentals x 6 months).

Income and debt

The investor’s debt to income ratio cannot exceed 45% by most traditional lender standards. Rental income from existing units must have a minimum 12 month history and a 25% discount is applied to recognize periods of non-occupancy. This must be substantiated by signed and executed rental agreements and tax returns.

Maximum number of properties mortgaged

Currently, Fannie Mae has set a limit of 10 properties financed for any individual. However, there are only a small handful of national lenders who will approve more than four properties, and that is including the individual’s personal residence. A further restriction is imposed by those lenders willing to recognize more than four financed properties: limited loan program selection. Generally these more liberal lenders will require 30-year amortizations for fixed or limited adjustable rate programs. Shorter term loans are not available through the major banks to investors with more than four financed properties.

Credit scores and risk-based pricing adjustments

The minimum mean credit score is generally quoted as 680 by most lenders. Portfolio and non-recourse lenders have lower limits with higher rates. Private (hard money) lenders generally ignore credit scores but offset that risk with onerous rates, upfront fees, and lower loan to value requirements. Some owner financing can be found with a minimum of 25% down payment at the highest rates. Loans for FICO scores below 740 are available from major lenders, but the rates increase with each 10 point increment in score. This “risk-based” element can add up to 1% to the rate of an investor with a 680 score as compared to that available for the 740 qualifier.

Rates and programs

Major lenders price investor loans using the same daily table structures that they use for owner-occupied properties. The major difference is the imposition of discount points. Investors who make 25% down payments are required to pay 1.75 discount points. For those paying more than 25% but less than 20%, the hit increases to 3.0 points. These points are normally paid by locking higher rates. This normally equates to a rate of only ½% to ¾ % higher than those available for owner occupants. Along with purchase loans, refinance programs are generally available. Cash-out loans on investment properties are available through a very limited number of investors.

If you are an investor with all of your financial “ducks in a row”, this is a fantastic time to buy an investment home. Be sure to call your Houston-area mortgage home loan lender for more information or to get pre-qualified.

Increased Down Payments May Be Coming for Houston Mortgages

Feb 22nd, 2011
by Mike.
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Down payment requirements on Houston mortgages might look very different in a few years if a new proposal by President Obama is adopted. The proposal to increase down payments to 10% on federally-guaranteed mortgages is part of a far-reaching effort to reform government mortgage agencies Fannie Mae and Freddie Mac, which were bailed out by the government in 2008. Today, conventional mortgage loans in Houston that are backed by the government require a minimum down payment of 5% for well-heeled borrowers. The strategy is to turn more of this sector of the housing market over to private lenders whom today commonly require 20% or more down.

A direct correlation between has been discovered between the amount of down payment and the risk of foreclosure. An analysis of foreclosures in 2008 by McDash Analytics showed that 16% of foreclosures came from homeowners who paid down payments of less than 3%.  Another 35% were the result of negative equity which, most likely, is a function of both low down payment and a decrease in home prices.

In 1998, the percentage of borrowers who obtained a loan with no money down was less than 4%.  Conversely, eight years later at the height of the housing bubble, more than 20% of loans were made with no borrower investment. Today, almost 27% of homeowners nationally have negative equity, though the numbers in Houston are lower.

In looking at the impact of these potential changes on the home markets in Houston, many have pointed to Canada as a model for what the U.S. mortgage market should look like. In Canada, a far higher percentage of mortgages are retained by the lender on their balance sheets which has led to higher and more consistent underwriting standards. In addition, between 50% and 60% of mortgages initiated have terms of 25 years or less, whereas in the U.S. the benchmark 30-year mortgage makes up the vast majority of financing on newly purchased properties.  Furthermore, 20% down payments are common in Canada as are adjustable rate mortgages, though these variable rate mortgages are far more palatable than the exotic products offered here during the height of the housing bubble. Interestingly, in Canada, mortgage interest is not deductible and it is far easier for lenders to foreclose. Overall, the housing market to the north has remained healthy with foreclosures remaining well below 1% while in the United States, that rate has risen to more than triple that number.

Conservative home equity laws and a relatively healthy economy have spared the Houston mortgage and housing market from the chaos that has plagued states such as California, Florida, Nevada, and Michigan; however, the proposed changes to mortgage financing will undoubtedly affect 90% of all mortgages originated in Texas because they are being sold to Fannie Mae and Freddie Mac. The delicate recovery of the Houston mortgage and housing sector will be delayed by what amounts to a further tightening of the credit markets.

Houston homebuyers are advised to take advantage of near record low mortgage rates, affordable home prices, and the availability of low down payment financing now before this environment is not quite as friendly.

Effective Ways to Improve Houston Homebuyers Credit

Feb 16th, 2011
by Mike.
1 comment

Houston Spring Woodlands Mortgage Home LoansMany prospective Houston home buyers have never established a credit history. Sometimes, people have an aversion to borrowing money for any purpose. Other times, normally with limited incomes or cultural norms, people will only use credit for basic necessities (rent, utilities, and temporary loans) that don’t generate activity that is recorded by the major bureaus.

Consequently, when these consumers make the decision to purchase a home they find themselves very limited to borrowing from lenders who require alternative credit. Alternative credit comes in the form of verifiable payment streams for the aforementioned rent, utilities etc.

It is never easy to establish credit in a short time span. However, there are three strategies that do generate results within 12 to 18 months:

  • Acquiring a secured credit card
  • Taking out a signature loan at a credit union
  • Becoming an approved user of a family member’s credit card

Secured credit cards can be obtained from banks found online or locally. They normally require a deposit of at least $500 into a savings account to secure the small balance card. When the card is used sparingly and paid without fail well before the due dates, the bureaus will quickly report the positive activity and the first credit line will be established. Credit unions aren’t as quick to report, but still offer a good process to the new borrower to move toward home ownership.

Be mindful that these strategies will take a minimum of one year to show results and cannot be expected to reconcile previous poor credit behavior. However, coupling them with two or more alternative credit lines can assist the borrower in securing credit from a limited number of Houston mortgage lenders whose rates are slightly higher than traditional banks, but still able to offer affordable monthly payments.

Fannie and Freddie Make More Work for Houston Mortgage Applicants

Feb 7th, 2011
by Mike.
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Yet again, Fannie Mae and Freddie Mac have created another hurdle to getting a Houston mortgage loan application processed efficiently. These obstacles revolve around detailed investigations into inquiries appearing on an applicant’s credit report dating 120 days prior to application and continuing through closing.

Effective February 1st, 2011 (and even earlier for some lenders gearing up for this change), Freddie Mac is requiring an investigation into any inquiries on a borrower’s credit report that appear within four months of their Houston mortgage application. Lenders are then required to document the outcome of these inquiries to determine if additional debt was granted that could compromise the underwriting of the file to Freddie’s standards. For example, a Houston mortgage inquiry could indicate a borrower is merely shopping for the best rate and terms on their loan, or it could indicate an applicant is simultaneously applying for a loan to purchase a rental property which may lead to debt ratios higher than Freddie’s guidelines, or a different pricing structure.

Fannie Mae has mandated that lenders pull credit just prior to closing and that any interim inquiries be fully documented as to their outcome. A new credit card or installment loan inquiry can also make the difference between an applicant qualifying for a loan, or whether the loan needs to be underwritten all over again. We recently had a client who, despite our recommendation, took out a lease on a new vehicle shortly after their Houston mortgage loan application. This inquiry and the credit account did not appear on their initial credit report and was not disclosed by the borrowers. Two days before closing,  a revised credit report was pulled and the inquiry appeared. While the clients could easily afford the additional debt, securing details on the credit terms took an additional day, and the loan had to be returned to underwriting for re-approval. This delayed our closing by three days and meant our buyer had to pay a penalty for not closing on time.

Simple advice to homebuyers is to refrain from purchasing anything on credit, whether new or existing credit accounts, prior to or during, the loan process. However, it is better to be safe than sorry.  Ultimately, until everyone signs on the bottom line of their Houston mortgage and that loan funds, the home purchase and loan commitment can still come unraveled.

Cutting Your Houston Mortgage Payment – Part One

Jan 20th, 2011
by Mike.
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Ten Ways to Cut Your Hazard Insurance Premium


If you have a Houston mortgage, you likely also have an escrow account to pay your property taxes and homeowner’s insurance. According to the National Association of Insurance Commissioners, the average homeowner’s insurance premium rose 62% between 2000 and 2007; but while home prices fell almost 30% since mid-2006, insurance premiums have largely remained where they were during the housing bubble. Often, the contributions to this escrow account exceed the principal and interest portion of your loan payment, so taking steps to “right size” your insurance coverage makes a lot of sense. You can easily save hundreds of dollars a year by making some smart choices.

  1. Shop around – It is wise to shop around for your coverage every two years or so. Some insurers can get very uncompetitive when they have been faced with a torrent of claims or have had bad financial results, while others may get much more aggressive in pricing their coverage to gain market share.
  2. Raise your deductible – raising your deductible to 1% can save you hundreds, even thousands, of dollars. Just be sure that you have the resources to fund the deductible if you ever need to make a claim, and ensure you clear any increase with your mortgage lender.
  3. Beef-up security – adding a security system, smoke alarms, and deadbolt locks to your home can save you anywhere from 5–30% on your premium. Be sure to price the cost of your alarm monitoring to ensure you are not just shifting your expenses.
  4. Upgrade your home – adding features to your home that increase safety and reduce the chances for a claim can also save you significant dollars. Reinforcing your roof with hurricane straps or upgrading your plumbing can reduce the chances of a claim and reduce your bill. Be sure to check with your insurer to get an estimate of savings before starting your improvement project.
  5. Combine coverage – Discounts abound for homeowners who are willing to combine auto, homeowners and even personal liability policies. These discounts can make the combined cost of your coverage far lower than they would otherwise cost.
  6. Stick with your current insurer – I know this is flying in the face of being a smart shopper, but often insurers reward their clients that have a claim-free history with discounts. In many cases, the longer you go without a claim, the bigger the discount. Check with your current insurer about an existing client discounts before you switch to another company.
  7. Ask about other discounts – Retirees are often able to get an additional discount on their coverage since they are more likely to be at home to limit the impact of a claim. Members of unions and trade associations can also often secure discounts.
  8. Review your policy coverage – While increased coverage may pay for the increased cost of construction to re-build your home in the event of a disaster, be sure not to go overboard. The land on which your home sits is not covered by your hazard insurance so its value should be excluded from your coverage.
  9. Re-evaluate participation in a state-run plan – The Texas FAIR Plan Association writes coverage for homeowners who are having difficulty in obtaining coverage. In order to qualify, the homeowners must have been declined coverage by at least two private insurers. Doing a little more leg work and seeking out insurance in the standard insurance markets can provide more comprehensive coverage at a potentially lower cost. Check with both the major national franchises such as Farmer’s, Liberty Mutual, and Allstate, as well as an independent agent and lesser known names such as Amica and Safeco.
  10. Improve your credit rating – Clients with good credit can often get an attractive discount on their homeowner’s insurance so improving your credit score can not only get you an attractive Houston mortgage rate, but also an attractive insurance premium.

While we are all looking to save money, keep in mind that your hazard insurance plays an important role in preserving the investment you have in your home. You only know how good your coverage is when you have a claim, so be careful not to cut so many corners that you end up paying more in the end.

Houston Home Loans for Little to No Money Down

Jan 3rd, 2011
by Mike.
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People in the Houston, Texas area looking to purchase a home today will likely find that the financing environment is far different than it was a few years ago at the apex of the housing boom. Through the use of sub-prime and Alt-A loan programs, combo loans and seller-funded grant programs, it was somewhat easy to secure a home loan with little to no down payment. Many homeowners who purchased in those days are finding out how times have changed as they try to refinance a home with little, no, or even negative equity. In today’s economic environment, lenders are looking for more “skin in the game”, but there are still are some programs available that will allow a buyer to obtain a mortgage with little, or even no money down. The following is a brief description of some of those programs:

FHA Loans – FHA loans have speedily become the most popular mortgage vehicle for first-time and move-up home buyers. These loans will allow a borrower to obtain a loan with a minimum 3.5% down payment. This down payment can come from the borrower’s own funds, through a gift from a relative or employer, or through a down payment assistance program. In addition, seller contributions up to 6% of the sales price are still allowed. The Federal Housing Administration has expressed a desire to reduce seller contributions to 3%, but this guideline has not yet been implemented.

VA Loans – Mortgage loans guaranteed by the Veterans Administration are among the most attractive loans on the market today. These loans allow qualified active and retired military the ability to purchase a house with no down payment and more flexible qualifying criteria. In addition, the closing costs associated with VA loans are very reasonable as lender fees are limited and there is no monthly mortgage insurance. An up-front funding fee ranging from 1.25% – 3.3% applies to these loans, and seller contributions up to 4% of the sales price are permitted.

Down Payment Assistance – Down Payment Assistance programs offered by states, including Texas, and local governments such as the City of Houston, and Harris and Montgomery Counties offer down payment assistance to creditworthy first-time homebuyers in low to moderate income households. The amount of assistance can range from $5,000 to $30,000 dependent upon the area and the income level of the borrowers. Minimum credit scores of 640 typically apply and borrowers should have a minimum of $1,000 in order to cover the costs of up-front appraisal, property inspection, and earnest money deposit.

Gift Funds – Gift funds are among the most overlooked tools available to borrowers. In many cases, a parent or grandparent has the capacity, and willingness, to help a borrower with their first home.  This resource can often be tapped to make up the difference between what a borrower has saved, and what is required for a minimum down payment. As long as the gift does not need to be repaid, it can be used to meet the down payment requirements on government loans. Conventional loans generally have more stringent criteria that require a minimum down payment to come from a borrower’s own funds with gift funds comprising any excess over that requirement. Acceptable donors for gift funds include immediate family, a government or charitable organization, an employer or labor union, or a close friend who has a documented interest in the applicant.

Rural Housing Loans – The USDA’s Rural Housing Service offers 100% financing in certain designated rural areas. These areas include cities or town with populations equal to or less than 20,000 people and outside of major metro areas. In Harris County, there are several small communities eligible for this program. Surrounding counties have larger swaths of eligible areas.  You can check here for the USDA’s qualified areas. There is no limit on seller contributions with this program and the 3.5% guarantee fee may be rolled into the loan in excess of the appraised value.

HomePath Loans – These loans are offered on foreclosed properties owned by government mortgage giant Fannie Mae. Qualifying properties are typically recent construction where Fannie Mae has funded any necessary repairs. Under this program, Fannie Mae and participating lenders waive the appraisal requirement and allow owner occupants to buy with just 3% down. This down payment can come from a borrower’s own funds, gift funds, or from a grant. Most importantly, there is no mortgage insurance requirement on these loans which can mean thousands of dollars of savings to a homeowner over the life of a loan. Credit score requirements are normally higher on these loans, so expect to provide a minimum 660 credit score to qualify under this program.

Bond Money/First Time Homebuyer Programs/Mortgage Revenue Bonds – There are several first-time homebuyer programs that are available to borrowers meeting certain low income targets.   They also cover people who fall into certain employment categories such as professional educators, law enforcement, firefighters and emergency medical technicians. These programs, often referred to as “bond money”, offer a low fixed interest rate in addition to grants of up to 5% of the purchase price towards down payment and closing costs. All of these programs have income limitations that are based on family size and property location. Borrowers must typically complete a homebuyer education course and not have had an ownership interest in a home for the past three years. Minimum credit scores for these programs in Texas are currently 620.

My Community & Home Possible Programs – These programs are conventional programs offered by Fannie Mae and Freddie Mac lenders and allow low to moderate income first-time homebuyers to purchase a home with as little as 3% down. Mortgage insurance premiums are reduced under this program and specific employee groups are permitted to use grants to cover required reserves and more liberal debt ratios.

With so many programs available on the market, it is imperative that a qualified Houston mortgage lending professional is consulted to determine which home loan program is best suited for your individual needs as a borrower.

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