Austin Government Loans

Government Loans

There are two categories of government loans, VA and FHA.

FHA Loans
FHA loans are guaranteed by the United States Department of Housing and Urban Development (HUD). FHA loans provide loan to value ratios up to 97%. This means that typically you will need a 3% down payment plus some closing costs. There are ways around the down payment by using a gifting program, but 100% conventional loans are usually a better choice for buying a home with no down payment. However, FHA credit requirements are usually lower than with conventional financing, so some buyers that do not qualify for other loan programs will be eligible for an FHA insured loan. The seller of the property may contribute up to 6% toward closing costs. This is typically more than enough to cover all closing costs and pre-paid items. FHA loan limits in Travis, Williamson, and Hays counties are currently $177,650 for a single family home. FHA loan limits for other counties are available here.

FHA offers many different programs depending on what your needs are. They can be used to purchase a home, refinance a home, or buy and repair a home. Fixed and adjustable rate programs are available. Unlike conventional loans, FHA does have some strict property standards and usually significantly higher closing costs. FHA loans also require mortgage insurance to be paid monthly over the entire life of the loan. With conventional loans you can typically avoid paying mortgage insurance by putting down 20%, or financing your purchase with two seperate loans. Also, government loans require the bank to collect monies monthly which are deposited into an escrow account to pay the yearly homeowner’s insurance and real estate taxes. With many conventional mortgages you can opt not to set up an escrow account & save money yourself to pay your homeowner’s policy & real estate taxes. This is advantageous because you could save that money in an account which earns interest rather than the lender collecting it for you in an ecrow account which does not earn interest. Some of the different types of FHA loans are explained below.

Section 203(b) – This is a standard fixed rate loan for the purchase or refinance of a one to four family property. This loan is only available to owner occupants. You can not use this loan to purchase investment property. This is the most common FHA loan.

Section 234(c) – This program is used specifically to finance the purchase of a unit in a condominium. It is very similiar to the 203(b) program except for a few restrictions. The development cannot be converted from rental housing within the last year, the buyer cannot have been a tenant in the rental unit, and the complex must be 80% occupied by owners of the units. If more than 20% of the units are owned by investors, FHA will not insure the property.

Section 251 – This is very similiar to the 203(b) loan type. The difference is section 251 loans are adjustable rate mortgages based on the 1-year Treasury Constant Maturities Index. Every year the interest rate will change. The maximum amount the interest rate can change from one year to the next is one percentage point. The maximum change over the life of the loan is a five percentage point change from the initial rate. The rate may rise or fall depending on the bond market.

EEM – The Energy Efficient Mortgages Program can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower’s mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life as determined by a home energy rating system (HERS) or an energy consultant. The cost of the improvements that may be eligible for financing as part of the mortgage is either 5 percent of the property’s value (not to exceed $8,000) or $4,000 — whichever is greater.

VA Loans
VA loans are for current and former military personel only. These programs are administered and guaranteed by the Veterans Administration. VA loans can be up to 100% financing and also allow a contribution from the seller for closing costs, making VA loans a very good choice for veterans to use when financing a home with no down payments. Credit requirements are more lienient than most conventional loans, but VA loans also have very strict property standards. Therefore, VA loans do not usually work well when trying to buy a property that needs major repairs. VA loans, like FHA, require escrow accounts & have very high closing costs.