How to Qualify for Income Based Home Loans in Texas

Buying a home is an exciting milestone, but it can feel out of reach if your income is limited. The good news is that Texas offers special income based mortgage loan programs to help make homeownership affordable. These low interest rate loans have flexible underwriting guidelines so borrowers with modest incomes, limited savings and even some credit challenges can qualify.

In this comprehensive guide, we’ll explain what income based home loans are, who offers these mortgage programs in Texas, eligibility requirements, the application process, and tips for getting approved.

What Are Income Based Home Loans?

Income based mortgage loans are a type of government-backed financing that bases eligibility on the applicant’s income rather than on credit score or down payment amount The loans help creditworthy borrowers with low-to-moderate incomes purchase homes they can reasonably afford based on their household earnings

Some key features of income based home loan programs include

• Down payments as low as 3% of the purchase price

• Lenient credit guidelines – may qualify with a FICO score as low as 580

• No mortgage insurance (PMI) required

• Below market interest rates

• Fixed rate terms up to 30 years

• No prepayment penalties

These flexible qualifications allow more Texans to achieve homeownership. Income limits, home price limits and underwriting criteria vary by the specific loan program.

Who Offers Income Based Home Loans in Texas?

Several Texas state agencies and national lenders offer income based mortgage loans to home buyers across the state:

Texas State Affordable Housing Corporation (TSAHC) – Non-profit organization that offers the First Time Homebuyer Program and Home Sweet Texas Home Loan Program. Down payment assistance available.

Texas Department of Housing and Community Affairs (TDHCA) – Administers the My First Texas Home and Texas Mortgage Credit Certificate (MCC) programs.

U.S. Department of Agriculture (USDA) – Offers Section 502 Direct and Guaranteed loan programs for low income buyers in rural areas.

U.S. Department of Veterans Affairs (VA) – The VA Home Loan Guaranty program assists eligible veterans and active duty service members.

Federal Housing Administration (FHA) – Popular low down payment financing option for first-time home buyers.

Fannie Mae HomeReady – Flexible income based loan program offered through lenders like Chase, Wells Fargo and local banks.

Freddie Mac Home Possible – Similar income based loan as Fannie Mae’s HomeReady, offered by participating lenders.

Income based mortgages can be provided by various banks, credit unions and mortgage lenders in Texas. Be sure to ask your lender about these special affordability programs.

Income Based Loan Requirements in Texas

While each mortgage program has its own specific eligibility guidelines, most income based loans look at three key criteria:

Income Limits – Maximum household income thresholds based on the property’s location, typically ranging from 50% to 80% of area median income. Current income limits can be found on lenders’ websites.

Home Price Limits – The maximum allowed sales price the home can be, typically ranging from $200,000 to $375,000. Varies by county.

Debt-to-Income Ratio – Your total monthly debt divided by gross monthly income. Usually a cap of 45%.

Meeting the income, home value and DTI limits ensures the loan programs serve their intended buyers. Check with individual lenders for their exact qualification guidelines.

How to Apply for Income Based Home Loans in Texas

Follow these steps to apply for special affordable income based mortgage financing:

1. Check eligibility – Use online calculators or talk to a lender to see if you qualify based on income, sales price and debt.

2. Get pre-approved – Work with a participating lender to submit income/asset documents and run credit to get a pre-approval letter.

3. Find a home – Search for homes within your qualified price range that meet loan program requirements.

4. Make an offer – Your lender can advise if the property will appraise and help negotiate the purchase agreement.

5. Final underwriting – Provide updated paperwork so underwriters can approve your full loan application.

6. Close on time – Finalize loan documents, complete the final home inspection and appraisal, then head to the closing table!

Be sure to communicate closely with your loan officer throughout the mortgage process to ensure a smooth closing.

Tips for Getting Approved for an Income Based Home Loan

It takes a disciplined approach to successfully qualify for income based mortgage programs in Texas:

• Improve your credit – Work over the 12 months prior to apply to increase your FICO score.

• Pay down debts – Reduce credit card and auto loan balances to lower your DTI.

• Save for a down payment – Even 3% down requires several thousand dollars.

• Gather documents – Have 2 years of W2s/tax returns, bank statements, and paystubs ready.

• Watch for large deposits – Don’t deposit unverified cash into accounts. Lenders will ask about source.

• Maintain income – Don’t change jobs or salary prior to closing.

• Choose an affordable home – Stay realistic on what you can afford based on your total monthly debts.

With proper preparation, an income based mortgage makes homeownership attainable if you have limited income and savings.

Sample Income Based Loan Scenario

Here is an example to illustrate a potential income based home loan scenario:

• A married couple earns a combined $60,000 per year in income

• They qualify for a $200,000 home based on income limits in their county

• They have saved $7,000 for a 3.5% down payment

• Their total monthly debts (student loans, car payment, credit cards) is $800

• Their gross monthly income is $5,000

So their debt-to-income ratio is $800/$5,000 = 16%, well below the 45% limit. They could qualify for an FHA, USDA, VA or HomeReady loan with down payment assistance programs potentially available to supplement their $7,000 if needed.

Common Questions About Income Based Home Loans

Can I get an income based loan for a condo?

Yes, income based loans can be used to purchase condos or townhomes, provided the complex is approved by FHA, VA, USDA, Fannie Mae or Freddie Mac.

Do income based loans require PMI?

No. Due to their flexible lending guidelines, income based loans do not require private mortgage insurance even with lower down payments. This saves borrowers hundreds per month.

Can I get a renovation loan on an income based mortgage?

Renovation financing typically combines a first mortgage with a home improvement second loan. Ask your lender if rehab loans are offered with their income based program.

Are manufactured homes eligible for income based loans?

Yes. USDA, VA, FHA and other programs allow manufactured housing. Just be sure to meet the construction requirements of the particular loan program.

Can income based mortgages be assumed by a buyer if I sell?

Most income based loans can be assumed by a qualified buyer when you sell. This makes your home more marketable to other income-eligible buyers.

Partner with a Trusted Lender

The key to successfully financing a home purchase with income based mortgage programs is working with an experienced lender familiar with these loans. Be sure to partner with recognized TSAHC and TDHCA approved lenders with a strong track record of income based loan originations.

Ask trusted real estate agents for referrals to the top income based mortgage lenders in your local market. Look for great reviews and testimonials from past buyers financed through these affordability programs.

Get Started Today on Your Path to Homeownership

Don’t let limited income or savings discourage you from pursuing your homeownership dreams. Income based mortgage loans allow creditworthy borrowers to qualify for financing and buy a home based on their household earnings. Texas offers a variety of these special affordability programs to meet the needs of low-to-moderate income home buyers across the state.

Partner with an experienced lender and housing counselor to evaluate your situation, improve any deficiencies, and apply for the optimal income based home loan for your goals and finances. With dedication and the right partnerships, you can join the millions of Texans who have achieved the pride and financial benefits of homeownership.