As a first-time homebuyer, it can be overwhelming to navigate through the process of purchasing a house. There are many different types of mortgages available to buyers, such as conventional, USDA, VA, and FHA loans, just to name a few. Knowing which mortgage is the right fit for you is easier when working with a trusted mortgage lending professional. The next best thing is to do your research about the options available to you.
FHA home loans are mortgages that make homeownership dreams become an easy reality. These loans are backed by the Federal Housing Administration and have more flexible eligibility requirements and lower down payment options when compared to conventional loans. If you want to buy a home in Texas, exploring FHA home loans could be a great option to help you become a homeowner.
The Federal Housing Administration’s (FHA) mortgage loan program can be an attractive option for Texas homebuyers who want to purchase a home with a low down payment. FHA loans only require a 3.5% down payment and have flexible credit requirements. However, there are some specific guidelines and requirements to qualify for an FHA loan in Texas for 2023.
FHA Loan Limits in Texas
The first thing to check is whether the purchase price or loan amount for the home falls under FHA loan limits for the county where the property is located Here are the current 2023 maximum FHA loan limits for Texas
- 1-unit (single family home): $632,200
- 2-unit: $814,500
- 3-unit: $984,625
- 4-unit: $1,223,475
These are the highest possible limits in the highest cost counties like Austin, Dallas, Houston, and San Antonio. FHA loans limits for other counties can be significantly lower. You can check your specific county’s limits on the FHA loan limits lookup tool. The home’s purchase price and loan amount must be below the limits.
Minimum Credit Score
To qualify for the lowest minimum 3.5% down payment you’ll need a credit score of at least 580. If your credit score is between 500-579, you can still qualify but will have to put down at least 10%. Those with credit below 500 will not be approved.
Along with your score, the FHA looks at your recent credit history, any late payments, collections, foreclosures, or bankruptcies. Make sure to check your credit report and resolve any errors or issues before applying.
Debt-to-Income Ratio
The FHA requires your total monthly debt payments including the new mortgage payment to be no more than 43% of your gross monthly income. This includes credit card payments, auto loans, student loans, child support, and other debts. Stay below this 43% debt-to-income (DTI) threshold to qualify.
Cash Reserves
After closing on an FHA loan, you must have enough leftover cash reserves equivalent to at least two monthly mortgage payments. This provides a financial cushion. The reserves don’t have to be from your own funds – gifts, grants, and loans can also count.
Occupying the Property
FHA loans are only given for owner-occupied principal residences. You must move into the home within 60 days of closing and occupy it as your primary residence. FHA loans cannot be used to purchase rental or investment properties.
Types of Homes Allowed
The FHA allows financing for single-family homes, duplexes, triplexes, and fourplexes. Manufactured and mobile homes are also eligible if they meet certain requirements. Condominiums can be financed but must be on the FHA’s approved condo list.
First-Time Homebuyers
You don’t have to be a first-time buyer to be eligible. The FHA program can help both first-timers and repeat buyers finance a home with low down payment.
Cash-Out Refinancing
FHA cash-out refinancing allows homeowners with sufficient equity to take cash out of their property by refinancing into a larger mortgage. The cash can then be used for any purpose. Texas homeowners with FHA loans can refinance and tap their equity after living in the home for at least one year.
Downpayment Assistance
If you are having trouble saving up for the down payment and closing costs, the good news is there are many downpayment assistance programs available to Texas homebuyers using FHA loans. These programs provide grants, forgivable loans, or secondary financing to cover most or all of your required down payment.
The funds come from government housing agencies, non-profits, employers, banks, and other sources. Be sure to research downpayment assistance options and see if you qualify for one of these programs to buy your home with little-to-none of your own cash.
Mortgage Insurance
FHA loans require both upfront and annual mortgage insurance premiums (MIP). The upfront MIP is 1.75% of the base loan amount, and the annual MIP is 0.85%. This insurance protects the lender in case of default. On a $250,000 loan, you would pay $4,375 upfront + $179 per month.
The MIP payments are required for the life of the loan unless you refinance. However, once you reach 22% equity in the home and meet some other requirements, you can request to have the annual MIP canceled.
Seller Contributions
The FHA allows the seller to contribute up to 6% of the purchase price to pay for the buyer’s closing costs and prepaid items. This can help reduce your out-of-pocket expenses at closing. Make sure to negotiate this with the seller.
Loan Term and Type
FHA loans come in a variety of terms including 15, 20, 25, 30 or 40 years. The most popular option is a 30-year fixed rate mortgage. FHA also offers 5/1, 7/1, and 10/1 adjustable rate mortgages (ARMs) which have an initial fixed period before becoming adjustable.
What is an FHA Loan
Federal Housing Administration loans (FHA) are government-backed mortgages designed to make homeownership more accessible. These loans are ideal for first-time homebuyers and those with lower credit scores. A common misconception about FHA homes is you have to be a first-time homeowner to qualify. However, anyone can secure an FHA home loan if a borrower meets the FHA minimum requirements. A key feature of FHA loans is the low down payment requirement, which can be as low as 3.5% of the purchase price.
To qualify for an FHA home loan in Texas, you’ll need to meet specific requirements:
Lenders use a debt-to-income ratio (DTI) to determine whether you can afford home loan payments. Most conventional loans require a DTI of no more than 45%. However, FHA loans can push a borrower’s DTI up to 50% for well-qualified borrowers.
The property you want to purchase must meet specific standards to ensure it’s safe and habitable for primary residences. These standards are:
- Safe: The house must be in a safe and liveable condition.
- Secure: The property should offer protection from weather or hazards.
- Soundness: The home cannot have any structural defects such as roof or foundation issues.
Other property requirements to keep in mind:
- Residence: The home must be a single-family residence with a four-unit cap. The property can be a condo, but it must be a FHA-approved condo. If the condo is not FHA-approved, you will have to explore other financing options, such as a nonwarrantable condo mortgage.
- Intended Use: The house cannot be an investment property, and you must start living in the home within 60 days of closing on your property. It has to serve as your primary residence.
FHA requires an appraisal and inspection of the house to ensure it meets their criteria. During the appraisal and inspection process, if a house does not meet the minimum property standards for safety, security, and soundness, the house will be disqualified for an FHA home loan. Even if this happens, speak to your realtor and loan officer as soon as possible to find solutions.
Mortgage Insurance Premium (MIP)
You’ll need to pay mortgage insurance premiums, which can be included in your monthly mortgage payments. This differs from private mortgage insurance (PMI) associated with conventional loans. If you put down 20% on conventional loans, you avoid having to say PMI. However, with FHA loans, regardless of how much you put down, you still have to pay a mortgage insurance premium. The MIP is typically 1.75% of the total loan amount.
If approved, you’ll sign the final paperwork, pay any closing costs, and receive the keys to your new home.
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The Good and BAD of FHA Loans | NEW FHA Loan Requirements 2023
FAQ
What disqualifies you from an FHA loan?
What credit score do you need for a FHA loan 2023?
What will FHA loan limits be in 2023?
What is the FHA loan limit 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 2024, the maximum loan limit in Texas is $498,257 for a single-family home and $1,099,150 for a four-plex. Limits varies by county. The minimum loan limit is $5,000. Loan limits vary by county and home size.
What is the FHA floor loan limit for 2024?
For 2024, the national conforming loan limit is $766,550 for a one-unit property. The FHA floor loan limit is 65% of the national conforming loan limit, or $498,257 for a one-unit property. This amount applies to the majority of the counties across the country.
What are the FHA loan credit score requirements in Texas?
In Texas the FHA loan credit score requirements are dictated by the the lenders. According to the the FHA you will need a 10% down payment from borrowers with credit scores between 500 and 579. If the borrowers have a credit score of 580 or above their down payment is at least 3.5%.
Do you qualify for an FHA loan in Texas?
But while they could more easily qualify for a mortgage, there are limits to what they could qualify to receive. When qualifying for an FHA loan in Texas, the loan limit for a single-family home is $498,257 with a maximum of $571,550 for high-cost areas. Knowing these limits could help homebuyers find a home they could qualify to purchase.