Basic Types of Loans:
Conventional: A "traditional" mortgage, not directly insured by the Federal Government. Most conventional loans under $417,000 are administered through Fannie Mae or Freddie Mac (private corporations but regulated by the government). Generally requires a 3% or more down payment.
FHA: Insured by (but not funded by) the Federal Housing Administration (FHA) a division of the U.S. Department of Housing and Urban Development (HUD), and designed for, in general, low- and middle-income borrowers and many first-time buyers. There are, however, limits (which vary from county to county) to the maximum loan amount. Austin’s maximum FHA loan limit is $288,750. FHA loans have somewhat more relaxed qualifying standards and ratios than conventional loans and have the availability of both 15 and 30 year fixed as well as 1 year adjustable mortgages. Generally requires a minimum 3.5% down payment.
VA: For those qualified by military service, the Veterans Administration (VA) insures (but does not fund) 15 and 30 year fixed as well as 1 year adjustable mortgages with lower down payment requirements (as low as 0 down) and somewhat more lenient qualifying ratios. The loan limit for the Austin area is $417,00. Some VA borrowers may also qualify for a reduced interest rate program offered in the State of Texas call The Texas Veteran's Land Board reduced interest program. Typical interest rates are .25% below the average 30 year fixed rate loan and in addition, veteran's with qualifying disabilities may receive up to an additional .50% discounted rate.
Zero Down Loans: There are many loan options which offer no money down or no money due at closing. While these may sound the same, they couldn't be more different. With any loan, your total cash required at closing is equal to your down payment plus your closing costs. Every loan has closing costs simply due to the fact that services have to be performed in order for a loan and a real estate transaction to close. There are parties involved that perform these services like an appraiser, a title company, and an inspector. Therefore, zero down does not equal zero total move in. You should assume that you will have to pay closing costs even with a zero down loan.
Zero down loans are offered through VA, USDA, and occasionally through other lending institutions. It is important that you discuss this with your loan officer so that he/ she can explain all of the fine details.
There are also programs available through City, State, and Federal Government Programs. These assistance programs are usually set aside for first time home buyers who meet income and property qualifications. These loans are typically used in conjunction with an FHA loan and they generally provide down payment assistance or a reduced interest rate for your loan. You may also qualify under FHA to receive a cash grant from a nonprofit organization or be provided a gift for your down payment from a family member.
The key to understanding these options is to realize that there are plenty of options available that can assist you for particular needs or lack of resources. Home buying is much easier today than in times before and home ownership is a integral part of financial freedom. Studies have proven that home owners typically make better financial decisions.