For many homebuyers in Texas, FHA loans can provide an accessible path to affordable home financing These government-backed mortgages insured by the Federal Housing Administration offer more flexible eligibility standards than conventional loans If you’re considering an FHA loan for your Texas home purchase, this comprehensive guide will overview the program, requirements, benefits, limitations, and how to qualify.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development (HUD). These government-backed loans help homebuyers who may not qualify for conventional financing for reasons such as:
- Low down payment funds
- Short or poor credit history
- High debt-to-income ratio
By insuring the loans the FHA provides lenders with protection against losses if a borrower defaults. In return for this security, lenders can offer more flexible terms to buyers who meet FHA underwriting standards.
FHA Loan Requirements in Texas
While they are more lenient than conventional mortgages FHA loans do come with some key eligibility requirements
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Minimum credit score: At least 500, but scores of 580 or above qualify for a lower 3.5% down payment on purchase loans. Under 580 will require 10% down.
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Debt-to-income ratio: Less than 50% preferred, but up to 57% allowed with compensating factors.
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Down payment: At least 3.5% of the purchase price if your credit score is 580+ or 10% if below 580. Gifts and grants can be used for the down payment.
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Mortgage insurance: Upfront mortgage insurance premium and annual mortgage insurance premium required.
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Home inspection: Property must pass FHA appraisal and minimum housing standards.
In addition to meeting these requirements, you’ll need to provide the standard income and asset documentation mortgage lenders require to underwrite and approve the loan.
Benefits of an FHA Loan in Texas
FHA loans provide several advantages for Texas homebuyers:
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Low down payments – The ability to put down as little as 3.5% makes FHA loans more accessible for first-time homebuyers without a lot of cash saved up.
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Flexible credit requirements – FHA loans allow credit scores as low as 500, which expands options for those with poor or limited credit histories.
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No cash reserves required – You are not required to have a certain number of months of mortgage payments in savings after closing.
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Lower monthly mortgage insurance – FHA mortgage insurance premiums are lower than on conventional loans.
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Assumable financing – FHA loans can potentially be assumed by new buyers when you sell, adding value.
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Gift funds allowed – The down payment can come from family gifts, grants, employer programs, or other sources.
For buyers who may not meet conventional loan standards, an FHA loan can make financing achievable where it otherwise would not be.
Limitations and Drawbacks of FHA Loans
FHA loans also come with a few potential disadvantages to weigh:
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Mortgage insurance – You’ll pay an upfront MIP of 1.75% of the loan amount plus annual MIP of 0.85% of the balance. This adds to the monthly payment.
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Lower loan limits – The maximum FHA loan amount in most Texas counties is $420,680. The limit is higher in more expensive housing markets.
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Strict criteria on condos – Getting FHA approval for financing a condo purchase can be challenging compared to other loans. Not all condos are eligible.
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Upfront costs – In addition to down payment funds, closing costs on FHA loans can be expensive, often totaling 3-5% of the mortgage amount.
As long as you understand the costs and restrictions involved, an FHA loan can still be a good option for Texas homebuyers who don’t fit the conventional lending mold.
FHA Loan Requirements for Refinancing in Texas
In addition to purchase loans, FHA also insures mortgage refinances in Texas. Here are some key FHA streamline and cash-out refinance requirements:
FHA Streamline Refinance
- At least 6 months of on-time mortgage payments
- Only limited credit review – no appraisal
- Must have existing FHA loan
- Up to 97.75% LTV allowed
FHA Cash-Out Refinance
- 12 months of on-time mortgage payment history
- Full credit underwriting
- New appraisal required
- Up to 80% LTV allowed
Streamline refinances let existing FHA borrowers refinance easily into a lower rate/payment, while cash-out refinancing unlocks home equity for other uses but has stricter eligibility standards.
How to Qualify for an FHA Loan in Texas
As you prepare to apply for an FHA mortgage, here are some tips for getting approved:
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Maintain a credit score of at least 580 – higher is even better. Review your credit reports and address any issues.
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Pay down revolving debts like credit cards to get your debt-to-income ratio lower. Below 50% DTI improves your chances.
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Save up funds for your down payment and closing costs. Have 3-6 months of bank statements showing these funds.
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Shop for the best rates on both mortgage and homeowners insurance. Get quotes from multiple providers.
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Be prepared to explain any derogatory credit events through a written explanation statement.
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Choose an FHA lender that provides great customer service and keeps you informed during the process.
With some preparation and attention to detail, you can successfully navigate the FHA loan process and become a Texas homeowner.
Finding an FHA Lender in Texas
There are hundreds of FHA-approved lenders in Texas you could choose to work with when getting an FHA loan. Here are some things to look for:
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Offer low mortgage rates and fees – get multiple Loan Estimates.
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Have knowledgeable loan officers familiar with Texas properties and requirements.
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Able to explain the pros/cons and guide you through the entire process.
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Responsive communication and quick turnaround times on approvals.
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Positive reviews and ratings from other borrowers.
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Options for in-person, phone, email, or online support.
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Loan processors experienced with documenting FHA loans.
Shopping lenders with these traits can lead to a smooth closing on time. Be sure to get pre-approved early on when house hunting.
The Bottom Line on FHA Loans in Texas
FHA-backed financing allows Texas buyers to become homeowners with less-than-perfect credit, limited savings, and moderate income by backing loans many lenders view as riskier. There are costs and restrictions to weigh against the benefits for your situation. But with the right preparation and research, an FHA loan can be the right choice to achieve the dream of homeownership in Texas.
What Are the Advantages of FHA Loans?
Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. An FHA down payment of 3.5 percent is required. Borrowers who cannot afford a traditional down payment of 20 percent or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario. Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.
- Must have a steady employment history or worked for the same employer for the past two years
- Must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state
- Must make a minimum down payment of 3.5 percent. The money can be gifted by a family member.
- New FHA loans are only available for primary residence occupancy
- Must have a property appraisal from an FHA-approved appraiser
- Your front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, home insurance) needs to be less than 31 percent of your gross income, typically. You may be able to get approved with as high a percentage as 46.99 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
- Your back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of your gross income, typically. You may be able to get approved with as high a percentage as 56.99 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
- Typically you must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner. See this page for more details.
- Typically you must be 3 years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
What is an FHA Loan?
FHA Loans in Texas are easy with Texas Premier Mortgage. No Lender Fees, Low Credit and First Time Home Buyers are easy to qualify. 3.5% Down Payment. An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers.
How To Apply For An FHA loan In Texas
FAQ
What disqualifies you from an FHA loan?
How much are closing costs on a FHA loan in Texas?
What is the downside of an FHA loan?
What is the maximum loan amount for an FHA loan in Texas?
To qualify for an FHA loan in Texas, your home loan must be below the local FHA loan limits in your area. For 2022, the maximum loan limit in Texas is $420,680 for a single-family home and $928,850 for a four-plex. Limits varies by county. The minimum loan limit is $5,000. Loan limits vary by county and home size.
How do I apply for an FHA loan?
Once you choose a lender, there are two ways you can apply for an FHA loan. You can go to the bank itself, obtain the necessary application forms, fill them out either there or at home, then submit them to your loan officer for review. However, many lenders now allow you to apply for an FHA loan online as well.
Who is eligible for an FHA loan?
Compared to conventional loans, FHA loans are available to individuals with low credit scores (as low as 500), non-traditional credit history or no credit history at all. Individuals with a credit score of 580 to 700 are eligible for an FHA loan with a down payment as low as 3.5%.
What are the benefits of an FHA loan?
FHA loans help make buying or refinancing a home more affordable in communities across the United States. The benefits of FHA loans include competitive interest rates, low down payments, flexible credit scores, and easier refinancing with the streamline program. How you apply for an FHA loan is similar to the way you apply for other mortgages.