Texas Veterans can combine two loan programs to secure better mortgage terms than using either one alone. The Texas Veterans Land Board loan and the federal VA loan work together with a "two-note" loan that creates a blended interest rate lower than traditional market rates, resulting in a lower monthly payment.
Understanding the Texas Veterans Land Board Program
The Texas Veterans Land Board operates as a self-funded state program that's been serving Veterans since 1946. It offers three loan types:
- Home purchase loans
- Land loans
- Home improvement loans
Home Purchase Financing
Veterans can borrow up to $806,500 for home purchases through the VLB Veterans Housing Assistance Program on fixed-rate loans with terms of 15, 20, 25, or 30 years. Down payment requirements are minimal, often requiring little to no money down. The state finances these loans through bonds repaid by Veteran borrowers, using no taxpayer money.
Veterans with a service-connected disability rating of 30% or greater receive an additional 0.5% interest rate reduction on home loans.
Land Purchase Option
The VLB land loan program allows Veterans to purchase rural land with 5% down on tracts of one acre or more. Financing reaches up to $150,000 for individual borrowers, or $225,000 when two Veteran spouses combine their eligibility.
Federal VA Loan Basics
VA home loans operate nationwide as a federal benefit backed by the U.S. Department of Veterans Affairs.
Key Benefits
- No maximum loan amount: Veterans with full entitlement face no maximum loan amount on VA loans.
- No downpayment: You can finance high-value properties without a down payment, assuming you meet lender credit and income requirements.
- No mortgage insurance (PMI): VA loans never require private mortgage insurance.
The VA Funding Fee
Most Veterans pay a one-time funding fee when closing. For loans closing on or after April 7, 2023, first-time users with no down payment pay 2.15% of the loan amount. Making a down payment of at least 5% reduces the fee to 1.5%, while 10% or more drops it to 1.25%. Veterans receiving VA disability compensation pay no funding fee.
How the Two-Note Structure Works
The two-note loan combines VLB and VA financing when the purchase price exceeds what the VLB can provide alone. Both loans close simultaneously and share one deed of trust as co-first liens.
The VLB provides the first portion (the program note) at below-market rates, capped at the conforming loan limit. A VA-approved lender provides additional financing (the participant note) at current market rates. The VA guarantees both notes, and your effective interest rate becomes a weighted average of both notes, meaning the larger loan amount has more influence on your interest rate than the smaller one.
Key Program Differences
Geographic Restrictions
The VLB requires you to be a legal resident of Texas at application and make the property your primary residence. VA loans have no state restrictions and work anywhere in the United States.
Refinancing Limitations
The VLB program does not offer refinancing. You cannot use VLB financing to lower your rate on an existing mortgage. VA loans include multiple refinancing options, including the Interest Rate Reduction Refinance Loan (IRRRL) and cash-out refinances.
Property Requirements
VLB financing applies only to primary residences including single-family homes, townhomes, and condominiums. Multi-family properties with two to four units must have been built at least five years before closing. New construction must meet energy efficiency standards: ENERGY STAR certification, a HERS Index score of 75 or below, or an Energy Rating Index of 75 or less.
For VLB land loans, the tract must be at least one acre with legal, usable access to a public road at least 60 feet wide. The land cannot be zoned strictly for commercial use, and you cannot have owned the property within the previous three years.
Qualifying for Both Programs
Texas VLB Eligibility
VLB requirements include being at least 18 years old and a Texas resident. Your service must include active duty military status, Texas National Guard membership, reserve component service with 20 years toward retirement, or at least 90 days of active duty service. Your discharge must be other than dishonorable.
VA Loan Eligibility
Federal VA eligibility requires a Certificate of Eligibility showing you meet minimum service requirements for your era of service. Both programs require sufficient income and acceptable credit.
Reusing Your Benefits
Once you fully repay a VLB loan, you can apply for another VLB loan. You can have one active loan in each VLB program category simultaneously.
VA entitlement can be restored after selling a home and paying off the VA loan, or you can use remaining entitlement for a second property while still owning your first home. Find out more about VA loans in our learning center.
FAQs
How does combining these loans affect my monthly payment?
Your payment reflects the blended interest rate of both loans combined. Because the VLB portion carries below-market rates, your total payment will be lower than taking a single conventional loan for the same amount.
Can I use these programs if I'm currently on active duty?
Yes. Both programs accept applications from active duty service members. The VLB requires you to be a Texas resident and intend to occupy the property as your primary residence.
What happens if I need to sell my home before paying off both loans?
Both loans must be paid off simultaneously at closing. The proceeds from your home sale pay off the combined balance.
Does the two-note structure affect my ability to refinance later?
The VLB portion cannot be refinanced through VLB programs. However, you could refinance the entire combined loan into a single VA loan through a standard refinance or IRRRL if rates drop.
How long does it take to close on a two-note loan?
Processing times are similar to standard VA loans. The additional complexity of coordinating two lenders may add a few days, but experienced lenders handle two-note transactions regularly.
