Similar to other mortgage programs backed by the federal government, VA loans are issued by private banks. Are you located in Texas or looking for a home using VA loans in Texas? Keep reading for everything you need to know about VA loan requirements.

Requirements for VA Loans in Texas

Borrowers must first meet basic VA loan requirements prior to applying. Applicants must have served 81 days of peacetime service. Ninety-one days of wartime active duty service, or a minimum of six years of service in the Reserves or National Guard.

For a spouse to qualify, they must meet one of the following requirements:

• The service member must have died of military-related causes
• The service member was missing in action or a prisoner of war for at least 90 days
• Surviving spouse has not remarried

Required Income

Unlike most loans, VA home loans have more flexible requirements. Instead of using the debt-to-income ratio, lenders determine eligibility based on whether the applicant can pay the mortgage and other expenses using their existing income.

Borrowers with low debt like car payments, credit cards, and living expenses will qualify for a larger mortgage. The max VA loan amount is $548,250, but you can apply for a VA Jumbo loan if you need a larger mortgage.

Credit Score

Loans for veterans through the VA, do not have a credit score requirement. Since the loans aren’t processed by the VA, banks and other mortgage lenders will have credit requirements.
The lenders do take into consideration the loans are backed by a guarantee in case the borrower defaults; therefore, credit score requirements are often relaxed and in the 600 range.

Bankruptcy

VA loan requirements make concessions for applicants that have experienced Chapter 7 bankruptcy. The rules indicate that lenders can disregard a bankruptcy that has been discharged for two or more years. There are allowances for the lender to make a determination on bankruptcies discharge between years 1 and 2.

For Chapter 13, the borrower must show twelve months of consistent payments.

Types of Loan

There are different types of VA loans. Let’s look at the most popular.

VA Home Loans
VA home loans are loans for the purchase of existing homes. The process of finding a home is simple. Create a list of must-haves and get with a realtor.

VA Construction Loan
VA construction loans are short-term loans that cover the purchase of land and the cost of building the home. Upon completion, the loan is converted to a standard VA home loan.

Do You Qualify for a VA Loan?
Don’t go through the hassle of trying to get a traditional bank loan if you meet the eligibility for VA loans in Texas. The process is easy and you earned the benefits.
If you have your Certificate of Eligibility, consider Trinity Oaks Mortgage to help with your mortgage financing. If you’re ready to start the application process. Click here to apply today.

The post VA Loans in Texas: Everything You Need to Know appeared first on Trinity Oaks Mortgage.

Prospective home buyers have many choices when it comes to home loans.  Two of the most popular are FHA loans and conventional loans. Wondering which loan makes more sense for you?

Our FHA Loans vs Conventional Loans guide will shed some light on this decision.

What Is a Conventional Loan?

A conventional loan is not federally backed, leaving lenders responsible for possible delinquencies. Lenders accommodate this risk by setting higher requirements for these loans. You will need a high credit score and stable income to be approved for this loan.

Lenders expect a credit score above 620. Your down payment influences the minimum credit score.

You can take out a conventional loan with as little as 3% down. However, you’ll need a higher credit score and stable income to justify the low down payment.

Lenders provide more favorable credit score minimums if you pay more upfront.

Conventional loan holders pay private mortgage insurance until they accumulate 20% equity. You can avoid this expense with a 20% down payment.

What Is an FHA Loan?

Not everyone can qualify for a conventional loan. FHA loan requirements make it easier for many people to be approved for a mortgage. These government-backed loans are a great choice for first-time home buyers or those with limited down payment funds available.

Just like a conventional loan, FHA loan approval varies based on your down payment. A higher down payment will compensate for a lower credit score.

You’ll need at least a 600 credit score to make a 3.5% down payment. Conventional loans open up to people with credit scores above 620. However, some lenders may not accept a 3% down payment unless your score exceeds 680.

FHA loans come with fewer obstacles. However, you will pay private mortgage insurance well after accumulating 20% equity.

FHA Loans vs Conventional Loans

Conventional loans offer more attractive rates and payment plans. You can ditch private mortgage insurance after achieving 20% equity. This expense won’t go away for a while if you opt for an FHA loan.

However, FHA loans remove barriers. You can qualify with less income and a lower credit score. FHA loans cater to people who can’t qualify for a conventional loan but still want to buy a home.

Get the Right Loan for Your Home

Debating FHA loans vs conventional loans provides clarity. However, you’ll still need a loan to buy the home of your dreams.

Trinity Oaks Mortgage provides loans to aspiring home buyers. We will review your information and set you up with the right loan. Explore our loan products to see how we can help.

The post FHA Loans vs Conventional Loans appeared first on Trinity Oaks Mortgage.

(Updated for 2022) If you’re a homeowner or home buyer in Texas, you’ve probably heard of homestead exemptions. Maybe that’s what brought you to our site. You’ve come to the right place! Below, you can learn all about Texas homestead exemptions, their basic requirements, and the application process.

What Is a Texas Homestead Exemption?

At its core, a Texas homestead exemption is basically a tax break for qualifying homeowners. It’s one of the many perks of buying and owning a home in the Lone Star State. A homestead exemption allows you to “write down” your property value, so you don’t get taxed as much.

As you probably know, residential property taxes are a major revenue source for the state of Texas. They help fund public schools, libraries, streets and roads, and more. They also compensate for the lack of state income tax. Texas is one of several states that do not impose a statewide income tax. As a result, they tend to lean more heavily on homeowners to generate necessary revenues.

And that’s where the Texas homestead exemption comes into the picture. The “residence homestead exemption,” as it’s officially known, is one of several tax breaks associated with homeownership. The state offers additional exemptions for military veterans, disabled persons, homeowners over 65, etc. But those are the subject of another article.

Click here for general information on homestead exemptions. Find your county here.

How Does the Standard Exemption Work?

Let’s talks specifics. Here’s how the basic Texas homestead exemption works. Section 11.13(b) of the state’s tax code requires public school districts to offer a $40,000 exemption on “residence homesteads” located within their districts. That’s legal jargon for a home that serves as a primary residence.

Other sections of the tax code offer similar exemptions:

• Section 11.13(n) gives taxing units the option to offer a separate homestead exemption of up to 20% of the appraised property value — but not less than $5,000.
• Section 11.13(a) requires a homestead exemption of $3,000 to be offered in those counties that collect flood-control or “farm-to-market” taxes.

The most common type of homestead exemption in Texas is the $40,000 reduction mentioned above, as outlined in section 11.13(b) of the state tax code.

So how does that exemption work?

Let’s say the local tax assessor or appraiser in your area determines that your home is worth $200,000. Under the standard Texas homestead exemption, you would be allowed to reduce the taxable value of your property by $25,000. So you would only be paying taxes on a $175,000 property value, versus $200,000. That could potentially save you hundreds of dollars annually.

Depending on where you live, you might have a separate exemption of up to $40,000. So this is something you’ll want to research at the local level, starting with your county’s tax website. Look for the “appraisal district” section of the website. That’s where you’ll find the homestead exemption rules and guidelines for your county, as well as any special requirements.

Prior to January 1, 2022, homestead exemptions could not be filed until the year after a home was purchased. As of 2022, homeowners may file for a homestead exemption immediately upon closing on their property, so long as an exemption has not yet been filed for that tax year.

Who Qualifies for It?

The good news is that there aren’t any strict qualification criteria for the general ($40,000) homestead exemption. You must have an ownership interest in the property and use it as your “principal residence.” In other words, you can’t use a homestead exemption on a second / vacation home. But that’s about it, as far as requirements go.

As it states on the Texas Comptroller’s website:

“A homestead can be a separate structure, condominium or a manufactured home located on owned or leased land, as long as the individual living in the home owns it. A homestead can include up to 20 acres, if the land is owned by the homeowner and used for a purpose related to the residential use of the homestead.”

Note: The general rules and procedures for a Texas homestead exemption come from state taxation officials. But the individual counties can implement them in different ways. So the exact requirements and exemption amounts can vary slightly from one county to the next.

Click here for general information on homestead exemptions. Find your county here.

How Do I Apply for It?

Applying for homestead exemptions in Texas is fairly straightforward, assuming you meet the basic eligibility requirements mentioned above. All you have to do is file a bit of paperwork.

The process can vary slightly from one county to the next. But in general, it works like this:

1. Visit the tax appraisal website for your county to find any specific instructions.
2. Obtain a copy of the “Application of Residential Homestead Exemption” (a.k.a., Property Tax Form 50-114) from your local appraisal district.
3. Complete the application with the required information about yourself and the property you’re claiming as a primary residence.
4. Submit the form in accordance with instructions provided by your appraisal district.
5. Provide any additional items your district might require (e.g., copy of driver’s license).
6. Follow up with your local appraisal district if you don’t receive any confirmation.

To learn more: If you have additional questions about this subject, you can refer to the “property tax exemptions” section of the Texas comptroller’s office. Their site offers more information on the topics covered above, along with a helpful FAQ section. You can find it with a quick Google search. You’ll also want to visit the “appraisal district” website for your particular county.

Have mortgage questions? Trinity Oaks Mortgage proudly serves the entire DFW Metroplex. Our experienced loan officers can answer any mortgage-related questions you have and guide you through the process. We look forward to hearing from you!

The post Homestead Exemptions in Texas: How They Work and Who Qualifies appeared first on Trinity Oaks Mortgage.

Home buyers across the Dallas-Fort Worth metro area will have a higher range of mortgage financing to work with in 2022, due to a recent increase in loan limits. Both conforming and FHA limits for the DFW area have been increased for 2022 in response to rising home prices.

What does this mean to you, as a home buyer and borrower? Read on to find out.

Dallas-Fort Worth Loan Limit Increased for 2022

Most of the mortgage loans available today have a maximum amount or limit for borrowers. This is true for conventional (or “regular”) mortgage loans, as well as the government-backed programs like FHA. Borrowers who wish to use a particular home loan program have to stay within these limits, with a few exceptions.

This can be a confusing subject if you’re new to it. So let’s take it one program at a time.

Conforming Loan Limit Increased to $647,200

A conventional mortgage loan is one that is not insured or guaranteed by the government. The term “conventional” is used to differentiate these products from the government-backed programs like FHA and VA.

Now let’s break it down further.

In terms of their size, conventional loans can either be conforming or jumbo.

• A conforming loan is one that meets the guidelines and parameters established by the Federal Housing Finance Agency (FHFA). It can be sold into the “secondary” mortgage market via Freddie Mac and Fannie Mae. It conforms to their standards, hence the name.
• A jumbo loan, on other hand, exceeds the conforming loan limit for the county where the home is located.  Therefore, it cannot be sold to Fannie or Freddie.

Federal housing regulators determine the conforming loan limits for the Dallas-Fort Worth area, and for the rest of the country. Subsequently in 2022, those limits will be going up due to rising home prices nationwide.

In November, the FHFA announced that “the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2022.  In most of the U.S., the 2022 maximum conforming loan limit (CLL) for one-unit properties will be $647,200, an increase from $548,250 in 2021.”

In 2022, the conforming loan limit for a single-family home in the DFW area is $647,200.

This applies to all counties within the Dallas-Fort Worth-Arlington metropolitan area (a.k.a., DFW metroplex). Collin, Dallas, Denton, Ellis, Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant and Wise counties all have the same conforming loan limit for 2022 — $647,200.

Jumbo Mortgage Threshold Going Up as Well

Home buyers with sufficient income can borrow more than the DFW conforming loan limit mentioned above. In industry lingo, this financing option is referred to as a “jumbo” loan.

In 2022, a jumbo loan in the Dallas-Fort Worth area is anything above $647,200.

Jumbo mortgage products tend to have stricter criteria, due to the larger amount being borrowed. Borrowers seeking a jumbo loan in Dallas must show that they have enough income to manage the monthly mortgage payments, along with other recurring debts. This is true for all mortgage loans, but the “bar” is typically set higher for jumbo loans due to their larger size.

Maximum FHA Loan Amount for Texas: $420,680

The Federal Housing Administration (FHA) loan program has its own unique set of loan limits. These mortgage loans are originated by lenders within the private sector, as with conventional. Unlike conventional mortgage products, FHA loans are insured by the federal government.

The Department of Housing and Urban Development (HUD) oversees the FHA program. In early December, HUD officials announced that the FHA loan limits for the DFW area — and most other counties across the U.S. — would be increased for 2022.

The 2022 FHA loan limit for the state of Texas will be $420,680, a slight increase from the 2021 limit of $411,700. That’s for a regular single-family home with only one residence. There are higher limits for duplexes and other multifamily properties.

Here are the DFW FHA loan limits for 2022, across all property types:

• One-family: $420,680
• Two-family: $538,650
• Three-family: $651,050
• Four-family: $809,150

As with the conventional caps above, these FHA limits apply to all counties across the DFW metroplex. That includes the counties of Collin, Dallas, Denton, Ellis, Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant and Wise.

In conclusion, the 2022 FHA and conforming loan limits for the Dallas-Fort Worth area, along with the revised jumbo loan threshold.

Learn more about the mortgage process. Contact a loan advisor today to take advantage of the loan limit increase.

The post Loan Limit Increased for 2022: Conforming, FHA and Jumbo appeared first on Trinity Oaks Mortgage.

In 2021, the limit for a mortgage in Texas was around $548,000. This week, the Federal Housing Finance Agency (FHFA) announced that the 2022 loan limit for conventional loans will go up over 18% to $647,200.

Mortgage Limits Increasing

What does the mortgage limit increase mean for you? It can mean two things depending on which direction you are going as a homeowner.

You can either buy a more expensive house because of the increased loan limit or you will not have to put as much money down for the homes that were in your budget range.

When it comes to buying a home, you generally have to put down at least 3% at minimum to qualify as a buyer. So, if you were looking for a home in a certain price range but did not have the most savings for a down payment, the previous limit may have prevented you from being able to buy that home.

Let’s say that you are trying to buy $625,000 this year. To meet the mortgage limit right now, you would have to have a 13% down payment ready to go to stay under that limit, rather than the minimum of 3%.

Now, with $625,000 to play around with when it comes to mortgage limits, you only have to come up with as low as 3% of the money right away. Assuming you qualify to do that, that can save you more than $62,000 to have to come up with in advance.

Interest Rates Expected to Go Up

One projection for next year comes from Fannie Mae, stating they expect 30-year mortgage rates to be 3.3% in 2022 compared to an average of 3.1% in 2021.

What does that mean? It means that if you take a 30-year mortgage on your home and do not pay your home off early, you are going to be paying more interest on your home if you buy it next year than you would this year.

Let’s say that you put 10% down on a home that costs $625,000 and you have a 3.3% mortgage rate on the remainder of the balance rather than 3.1%.

In this situation, you would be paying over $22,000 more on the projected 2022 rate than you would on the average rate you could get in 2021.

This may be partially due to inflation and partially due to the demand of the housing market but either way, expect to have to pay a little more in interest starting next year.

Learn More About the 2022 Conventional Mortgage Loan Limits

These are some of the 2022 projections for mortgage loan terms. Does that make you more encouraged or less encouraged to buy a home?

If you are ready to take the next step, contact us today to discuss your mortgage options.

The post Conventional Mortgage Loan Limits: A 2022 Forecast appeared first on Trinity Oaks Mortgage.

What is an FHA Loan?

The FHA loan is a great option for homebuyers with less than perfect credit and/or limited funds available to them. The program was developed in order to provide an alternate means of accessing the high standards set by conventional loans, while still allowing room from qualification requirements that can be challenging on those who have been approved before but want something different now because their circumstances may have changed since then.

Do I qualify for an FHA loan in Texas?

You’ll need to satisfy a number of requirements to qualify for an FHA loan. It’s important to note that these are the FHA’s minimum requirements and there may be additional stipulations.

Credit score

The minimum credit score for an FHA loan with Trinity Oaks Mortgage is 600. Though the FHA has not changed its requirements, the combined effects of the COVID-19 pandemic and recession have led many FHA lenders to raise their minimum required credit scores for FHA loans.

Down payment funds

If you’ve got a credit score of 620 or higher, your FHA down payment can be as low as 3.5%.

The good news? It doesn’t all have to come from savings. You can use gift money for your FHA down payment, so long as the donor provides a letter with their contact information, their relationship to you, the amount of the gift, and a statement that no repayment is expected.

Debt-to-income ratio

The FHA requires a DTI of less than 50, meaning that your total monthly debt payments can’t be more than 50% of your pretax income. This includes debts that you aren’t actively paying.

For student loans in deferment, your FHA loan underwriter will include 1% of the loan’s total as the monthly payment amount. For other types of loans that you aren’t currently repaying, underwriters will use 5% of the loan’s total to calculate your DTI.

Property approval

The property you’re trying to buy with an FHA loan, whether it’s a house, a condo, a manufactured home, or a multifamily home, has to meet FHA minimum property requirements.

The FHA requires an appraisal that’s separate (and different from) a home inspection. They want to be sure the home is a good investment — in other words, worth what you’re paying for it — and ensure that it meets basic safety and livability standards. If the appraisal comes in lower than what they need to borrow, they would be responsible for coming up with the difference OR they may be able to use that to negotiate a lower price from the seller. 

Today, most contracts are being written with the buyers waiving the right to negotiate the price if the value comes in low. In that case, the buyer would be responsible for paying for it. When the markets shift back towards a buyers’ market then there may be options of re-negotiation.

Mortgage insurance

FHA mortgage insurance is built into every loan. When you get an FHA mortgage, you’ll make an upfront mortgage insurance payment (which can be rolled into the total amount of the loan) and make monthly payments thereafter. If you put less than 10% down the MI will remain for the life of the loan. But, with 10% down or more then the MI will remain on for only 11 years.

• As low as 3.5% down payment

• Upfront mortgage insurance may be financed or paid in cash

• Ability to choose from fixed- or adjustable-rate terms

• Closing cost paid by the seller is 100% negotiable, but a seller is not required to pay any cost towards the buyers closing cost.

• 100% gift funds – the entire 3.5% down payment can be a gift from parents, relatives or an employer

• Flexible credit qualifying – because it is government-backed, lower credit score thresholds are in place

• May also be an option for borrowers with limited equity looking to refinance.

Find out more and see if you are eligible for an FHA loan from your Trinity Oaks Mortgage Loan Advisor.

Are you interested in applying for an FHA Home Loan?

Trinity Oaks Mortgage, one of the area’s leading mortgage lenders has vast experience in dealing with USDA Rural Development loans in Texas. We’re available to answer any questions, help determine if you are eligible, and guide you through the home loan process.  

APPLY NOW

If you or someone you know is interested in securing FHA financing, let’s talk! Submit the below form and we will connect you with one of our expert Loan Advisors near you.  

The post Introduction to FHA Loans appeared first on Trinity Oaks Mortgage.

What are USDA Home Loans?

They are mortgages issued by approved Rural Housing Service (RHS) lenders like Trinity Oaks Mortgage, nationwide. What’s popular about these loans is that if you meet certain requirements, then you could be approved for 100% financing, more lenient eligibility requirements and competitive interest rates – due to the loan being guaranteed by the USDA.

Who should consider a USDA Home loan?

If you’re a qualified homebuyer who lives in a rural area as defined by the USDA or an eligible Native American Indian and want to buy your own home, then taking advantage of USDA home loans may be right for you!

They are considered ideal for applicants with less-than-perfect credit or limited assets as they help provide maximum financial support to borrowers.

What are the benefits of a USDA Home Loan?

USDA loans offer several advantages over conventional mortgages. The down payment requirements for USDA loans are often much lower than other mortgages, leaving borrowers with more money in their pockets at closing. Also, interest rates tend to be lower than they would be on a conventional mortgage due to federal subsidies attached to these low-cost loans. 

How can you qualify?

The U.S Department of Agriculture requires that all applications for USDA debt be processed through local lenders/banks, which is what Trinity Oaks Mortgage does day in and day out for our clients.

To qualify for a USDA home loan, an applicant must meet the following requirements, as determined by USDA Rural Development:

• The applicant must be a United States Citizen or permanent legal resident.  
• The applicant must have a valid Social Security number or proof of application for one.
• The applicants’ annual household income must not exceed USDA’s limits. Applicants with incomes higher than USDA limits can still qualify for USDA Rural Development programs, but will likely need to go through an additional approval process.
• The applicant must be able to demonstrate that they have adequate employment history, verifiable sources of income, good credit or credible collateral.  
• The land must be in USDA zone districts and the borrower must not have an outstanding USDA loan on another property already.

Are there other requirements?

All applicants are required to go through credit counseling prior to obtaining a USDA loan. The applicant will need to attend a USDA-approved housing counselor training session with an accredited housing organization before it can be accepted for processing by Trinity Oaks Mortgage or any other local lender. The goal of credit counseling is to help reduce risk and give homeowners greater insight into their borrowing power.

Are you interested in applying for a USDA Home Loan?

Trinity Oaks Mortgage, one of the area’s leading mortgage lenders has vast experience in dealing with USDA Rural Development loans in Texas. We’re available to answer any questions, help determine if you are eligible and guide you through the home loan process.  

APPLY NOW

If you or someone you know is interested in securing USDA financing, let’s talk! Submit the below form and we will connect you with one of our expert Loan Advisors near you.  

The post A Guide to USDA Home Loans appeared first on Trinity Oaks Mortgage.

Speak With A Loan Advisor

This first touchpoint is critical and one that will establish our mortgage process going forward. You and your Trinity Oaks Loan Advisor will assess your credit, discuss expectations, and your best financing options.

Loan Application

You can submit an application so we can gather as much information upfront about your financial standing. This will give our loan advisors a good footing for knowing which loan financing option is best as well as get the process started.

Prequalification

With a prequalification, the lender performs a very basic review of your financial situation in order to tell you how much of a home loan you may be able to qualify for. Think of it as a free consultation between you and the loan officer.

A Pre-approval is a more in-depth process. Here, the lender verifies your income, debt level, credit score & other aspects of your financial situation to determine how much they are willing to give you a loan for.

Find A Home

Make a list of must-haves, deal-breakers, and wish-list to help target your home search.

Home Inspection

Perform general inspection. This is the time to reveal any issues or problems before you buy the property. Review the inspections, if there are any issues, this is the time to renegotiate with the seller or issue a request for repair.

Make An Offer/Offer Accepted

Work with your agent to put together the offer and if need be, negotiate. Your agent or transaction coordinator will open the escrow and order title. Get an initial deposit to them.

Submit Documents

You can submit an application so we can gather as much information upfront about your financial standing. This will give our loan advisors a good footing for knowing which loan financing option is best as well as get the process started.

Once we have received your signed loan package and the initial documents that we have requested, our team will review these documents to make sure all information is valid. Once all information has been validated as true and correct, your loan will be submitted for final credit approval.

Received Appraisal

We will order your appraisal from a licensed appraiser and it will be reviewed by underwriting once it is completed. To comply with the Equal Credit Opportunity Act (ECOA), Regulation B, you must certify in writing you have received the appraisal at least three days prior to closing. If you do not respond in writing three days prior to closing, you cannot legally close until 3 days have elapsed.

Please secure homeowners insurance immediately. Our closing team needs this information at least 7 days prior to closing. Feel free to call or email us if you have any questions along the way. Please remember that we are never too busy to help.

Underwriting

Underwriting validates that all information provided to our team meets Trinity Oaks Mortgage underwriting criteria. As our underwriter reviews the paperwork, please be aware that further clarification or documentation may be required.

During this stage of the loan process, your loan may be approved conditionally. If this is the case, our underwriting team will be in touch to discuss the next steps and may request additional information to explain certain conditions pertaining to your loan.

Loan Approval

Once your loan has been approved by our underwriting department, it is passed on to our closing department who will prepare your final loan documents for signing. A final breakdown of your cost to close will be sent to you prior to closing. This is called a closing disclosure. Please review the closing disclosure prior to closing day for accuracy.

CTC & Final Walk-Through

Remove contract contingencies. Make sure your loan is firm and make the final deposit. The loan advisor prepares and sends loan documents to escrow. Do the final home inspection and walk-through before closing.

Closing Day Is Here!

On your closing day, you will need to block out a comfortable amount of time. While a closing can be accomplished over your lunch break, you will want to make sure you have plenty of time in case one of the key players for the signing is running late, any documents are flawed and might need changing, or last-minute questions arise.

Setting aside half of your day for your closing ensures that you aren’t rushed and feel comfortable when leaving the closing table. Be sure to double-check your settlement statement for any errors prior to closing and check the numbers against your mortgage information.

Have more questions about our mortgage process? Trinity Oaks Mortgage proudly serves the entire DFW Metroplex. Our experienced loan officers can answer any mortgage-related questions you have and guide you through the process.

We look forward to hearing from you!

The post Our Mortgage Process appeared first on Trinity Oaks Mortgage.

When you choose Debt Consolidation Refinance, it involves paying off high-interest debt for a loan with a lower interest rate. Consolidating debt allows you to save on interest payments in the long term. Costs can add up quickly if you owe a lot of high-interest debt, and it can become unbearable. For many, the apparent path is debt consolidation.

Currently, mortgage rates are at an all-time low, and a debt consolidation refinance could be a smart way to save money. Prior to making a decision on debt consolidation, it’s essential to realize all that is at play and learn these five benefits. It’s crucial to discern what’s involved with these strategies because securing high-interest debt against your home can be risky, so weigh all the pros and cons before determining.

How does debt consolidation work?

High-interest debt commonly originates from unsecured financing sources, like personal loans and credit cards. “Unsecured” means the lender contains no surety to regain losses if you run out on the debt. (Unlike a mortgage, which is “secured” by a tangible item; your home.) It’s easy to get in way over your head with many high-interest payments being sent to numerous lenders every month. Debt Consolidation Refinance is a straightforward way if you have predictable income and want to have affordable monthly payments.

The goal of a Debt Consolidation Refinance

The main goal of any debt consolidation strategy is to have more manageable monthly costs. For most homeowners, the lowest-cost source of money is their primary mortgage. Homeowners wanting to consolidate debt often use a cash-out refinance. Debt consolidation involves closing on a new home loan worth more than your current mortgage amount. The additional loan amount is cashed out at your closing.

Then, you use the cashed-out money to pay off your current high-interest debt, leaving you with one single debt to pay off: your mortgage. With this route, you’re conclusively paying off costly unsecured debts by means of a lower-interest mortgage loan. Funds received during a cash-out refinance can be used to pay off other significant obligations, like medical bills or student loans.

If your top goal is to become debt-free faster, then the highest-interest debts should take priority. The added benefit is that today’s mortgage interest rates are at near historic lows. So there’s a good chance you can lower your current mortgage rate and save on home loan interest as well as the interest on your other debts. Don’t forget that refinancing comes with closing costs, just like with your original mortgage.

Requirements of a Debt Consolidation Refinance

In order to consolidate debt using a mortgage refinance, you must qualify for the new loan. Requirements vary depending on your current loan type and the type of cash-out refinance you are applying for.

First, you will need enough equity to pay off the existing debts. You’ll typically need more than 20% equity to qualify for a debt consolidation mortgage. Most lenders want you to leave at least 20% of your home equity untouched when using a cash-out refinance. For instance, 30-40% equity is required to cash out 10-20% in cash.

You will additionally need to meet minimum credit score requirements. The most common type of refinancing is a conventional cash-out refinance, and it requires a credit score of at least 620.

FHA offers a cash-out refinancing program, which allows a lower FICO score of 600. Be aware that taking out a new FHA loan means you’ll pay for a mortgage insurance premium (MIP), including both an upfront fee and a monthly mortgage insurance fee. This increases the total cost of your new loan and digs into your savings margin.

A great option for qualified veterans and service members is to consolidate debt via a VA cash-out refinance. The VA cash-out loan allows you to refinance 100% of your home’s current value. Veterans might qualify even if they don’t have enough equity for a conventional cash-out loan.

Benefits of a Debt Consolidation Refinance

Debt consolidation can be a resourceful way to get out of debt faster. Learn more about the five benefits of using a debt consolidation refinance.

Benefit #1 – Pay only one bill every month

One of the more apparent benefits of consolidating debt with a refinance is having multiple payments lumped into one payment. This benefit is a great way to free up money monthly to save or invest in your future.

Benefit #2 – Lower your monthly payments

Debt consolidation is a way to make your month-to-month debt more affordable by paying off to reveal a lower interest rate. Lowering your monthly payments is a great way to

Benefit #3 – Improve your credit score

Consolidating your debt can also improve your credit score. It helps by lowering your “credit utilization ratio,” which is the percentage of your total credit limit that you’re using at any given time.

In general, the lower your utilization ratio, the better your FICO score.

Benefit #4 – Save money by reducing the interest paid on outstanding debt

The obvious benefit of a debt consolidation refinance is that you’ll save money by lowering the interest rate on your outstanding debts. This could save you a tremendous amount of money in the long run.

Benefit #5 – Lower your current mortgage rate to save on home loan interest

Another benefit in completing a debt consolidation refinance is to save on your original mortgage interest. By consolidating your mortgage and debts together in one, you save on interest in the long run.

Overall, a debt consolidation refinance is a smart way to pay down your debts at a much lower interest rate. But it requires a high level of discipline in making payments to avoid negative consequences.

Remember, you still owe the money

With a Debt Consolidation Refinance, you should exercise caution and be highly disciplined in your repayment. You could put your home at risk if you’re unable to make payments with your mortgage or home equity-backed loan. Loanees occasionally get into trouble because their previous credit lines are freed up when their debt is consolidated. It’s possible to rack up debt and get into trouble all over again. Remember, consolidating does not mean your debts have been “wiped clean.” They’re just being restructured to become more feasible. The ultimate goal is to stay debt-free; a refinance or loan is just a means to that end.

Next steps

Debt consolidation is a reasonable road to get out of debt for many borrowers. You will need to be aware of the possible risks in advance to avoid them and pay down your debt victoriously.

• Pursue help to get your monthly spending habits under control
• Make a higher-than-minimum payment on debts
• Contemplate a zero-interest transfer or personal loan as another option

Have mortgage questions? Trinity Oaks Mortgage proudly serves the entire DFW Metroplex. Our experienced loan officers can answer any mortgage-related questions you have and guide you through the process.

We look forward to hearing from you!

The post In’s and Out’s of Debt Consolidation Refinance appeared first on Trinity Oaks Mortgage.

FHA loans are a popular financing option among home buyers in Texas. This program appeals to first-time buyers in particular, especially those with limited funds in the bank. FHA loans offer several key advantages, including a relatively low down payment of just 3.5%. As with all mortgage programs, there are certain guidelines and FHA loan requirements in Texas. Below, we will examine some of the minimum requirements for this program.

Minimum FHA Loan Requirements in Texas

Federal Housing Administration (FHA) loans are originated by mortgage lenders in the private sector, just like most other types of mortgage loans. Insurance is what makes the program unique. The federal government partially insures FHA loans, and that’s what distinguishes them from conventional or “regular” mortgage products.

The Federal Housing Administration falls under the Department of Housing and Urban Development (HUD). Among other things, HUD establishes the minimum guidelines for this mortgage program. Here are the basic eligibility FHA Loan Requirements in Texas.

Minimum Down Payment

Borrowers who use this program to buy a home must put down at least 3.5% of the appraised value or purchase price. That’s one of the key benefits offered by the FHA loan program. It allows for a relatively low down payment, reducing one of the hurdles to homeownership.

The down payment money doesn’t necessarily have to come out of your own pocket. When using an FHA loan to buy a home in Texas, you could obtain some of your down payment funds from a third-party donor. Family members and other approved sources can contribute money to your minimum required down payment — another big advantage.

But there are requirements for this as well. Down payment gift money must be thoroughly documented. The person providing the funds must submit a signed letter stating that they do not expect any kind of repayment.

Credit Scores

Credit scores are another important requirement when using a Texas FHA loan. Your credit score shows how you have borrowed and repaid money in the past. It’s based on information contained within your credit reports.

People who typically pay their bills on time tend to have higher scores, while those with a pattern of late or missed payments often have lower ones.

When it comes to the credit score requirements for Texas FHA loans, there are two important numbers you should know about — 500 and 580. According to HUD, borrowers must have a credit score of 500 or higher to be eligible for the program. To take advantage of the popular 3.5% down payment option mentioned above, borrowers must have a score of 580 or higher.

Debt-to-Income Ratios

When applying for a mortgage loan in Texas (whether it’s FHA, conventional or VA), you’ll probably encounter the term “debt-to-income ratio.” As the name suggests, this ratio compares your gross monthly income to your recurring monthly debts. It’s a risk-assessment tool.

Having a lower debt-to-income ratio can increase your chances for qualifying for an FHA loan in Texas. A higher-than-average “DTI” ratio can have the opposite effect, especially if it rises above the 50% mark. The goal here is to ensure that you, the borrower, are not assuming too much additional debt by taking on a home loan.

The debt-related requirements for Texas FHA loans are somewhat flexible. HUD allows for higher debt ratios in cases where the borrower has “compensating factors,” like extra cash reserves in the bank. Please contact us if you have questions about this or any other FHA loan requirement covered in this article.

FHA Loan Limits in Texas

Lastly, we have loan limits. When using an FHA-insured mortgage to buy a home, you’ll have to meet the loan limit requirements for your particular county. These limits represent the maximum amount you can borrow through this program.

Loan limits can vary from one county to the next, because they’re based on median home values. In 2021, the FHA loan limit for most Texas counties is $356,362. In pricier counties, like those that fall within the Austin metro area, the limit is currently set at $416,300. The Dallas-Fort Worth area has a limit of $416,300 in 2021.

Note: These figures apply to single-family home purchases in particular. There are higher caps for multi-family properties, such as duplexes and triplexes.

Have questions? Trinity Oaks Mortgage offers a wide variety of home loan options, including FHA. Please contact us if you have questions about the FHA loan requirements in Texas, or other mortgage-related topics.

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