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A mortgage insured by the Federal Housing Administration can help you buy a home with less-than-perfect credit and a down payment as low as 3.5%. The government backing of these loans allows lenders to offer financing to borrowers who may not qualify for conventional mortgages. While the FHA Loan program is popular among first-time home buyers, you can use this type of mortgage even if you’ve been on the market for a home before.
The federal government started the FHA mortgage program, which originally required a 20% down payment, in 1934 with the National Housing Act. FHA loans may have fixed or adjustable interest rates, and you can choose either a 15-year or 30-year mortgage term. Currently, the average APR for an FHA loan is slightly lower than the interest rate for a conventional mortgage. Review the requirements for an FHA loan to determine whether you qualify for this type of financing.
Getting approved for an FHA mortgage in Texas can help you achieve the dream of homeownership. With low down payments and flexible credit requirements, FHA loans open financing to more buyers. But you do need to meet certain eligibility standards to qualify for an FHA loan in Texas.
In this comprehensive guide, we’ll overview the key steps for meeting Texas FHA loan requirements.
Have a Minimum FICO Credit Score of 580
Your credit score is one of the top factors mortgage lenders review. For FHA loans in Texas, here are the credit score requirements:
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Minimum FICO of 580 – This allows you to qualify for the best terms with just a 3.5% down payment.
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500-579 FICO Score – You can still potentially get approved but a larger 10% down payment is required. Additional underwriting may also be needed.
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Use Lower Score if Different – Lenders will go by the lowest credit score if you have varying scores between the three credit bureaus.
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No Minimum on Co-Borrower’s Score – If you apply with a spouse or partner who doesn’t work outside the home, they don’t need an individual minimum score.
Shoot for a 580 FICO score or higher when applying for an FHA loan to access the lowest down payment option. But even scores as low as 500 can qualify with the right steps.
Keep Your Debt-to-Income Ratio Below 43%
Lenders will look at your debt-to-income (DTI) ratio to ensure your total monthly debt is affordable based on your income. Here are the DTI requirements for FHA loans in Texas:
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Maximum DTI of 43% – Your monthly debt payments can’t exceed 43% of your total gross monthly income.
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Compensating Factors – Lenders can approve DTIs up to 57% if you have positive compensating factors like significant retirement savings or home equity.
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Include All Debt Payments – When calculating DTI, count your mortgage payment, credit cards, student loans, car loans, child support, and any other monthly debt obligations.
Keeping your DTI on the lower side improves your chances of approval for an FHA loan. Paying down debts before applying can help lower your ratio.
Make a Minimum Down Payment of 3.5%
Coming up with the down payment is one of the biggest barriers for first-time home buyers. But FHA loans offer low down payments to qualified borrowers.
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For a credit score of 580+ – The minimum down payment is just 3.5% of the purchase price.
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With a credit score of 500-579 – The minimum down payment increases to 10%.
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Gift funds allowed – The down payment can come from gifts from family, employers, or non-profits.
With as little as 3.5% down, you can buy a home with an FHA loan rather than save up 20% or more like many conventional mortgages require.
Have Your Home Appraised
The property you want to buy must be appraised and meet FHA minimum property standards to qualify for financing. Here’s what to expect with the home appraisal:
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FHA will assign a certified appraiser to evaluate the property.
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The appraiser will assess both the interior and exterior condition.
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The home must meet FHA safety and soundness standards.
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FHA may require repairs to be completed if deficiencies are found.
Going through the appraisal ensures the home is a sound investment and not at risk of major repairs or safety issues after closing.
Stay Under the FHA Loan Limits
FHA sets maximum mortgage limits based on the county where the property is located. You can look up the limits for Texas counties to see how much you can borrow.
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The 2023 maximum FHA loan limit for most Texas counties is $491,250.
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Higher-cost areas like Austin can go up to $629,000.
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Limits are lower for FHA loans for condos and multi-unit buildings.
As long as your loan amount is below the FHA limit for that specific county, you’ll meet this key eligibility requirement.
Meet the Occupancy and Property Requirements
FHA loans come with occupancy and property rules you’ll need to meet as well. Here are some key standards:
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Primary Residence Only – FHA loans must be used to buy a home you’ll live in at least 50% of the year.
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Single Family Homes – 1-4 unit homes are eligible. Multi-family homes have different FHA programs.
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No Rental Properties – If you want to buy a rental property or vacation home, an FHA loan can’t be used.
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Condos Require Approval – The condo community must be FHA approved to finance a unit with an FHA loan.
Sticking to FHA’s occupancy and property guidelines is crucial for getting your loan approved.
Have a Steady Income and Employment History
As with any mortgage, you must have sufficient income to qualify for an FHA loan. Expect to provide:
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Recent pay stubs covering at least 30 days.
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Two years of W2s and tax returns if self-employed.
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Bank statements to verify your funds and reserves.
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A Verification of Employment from your employer.
Documenting stable income ensures you can afford the new mortgage payment and meet other financial obligations.
Check Ineligibility Due to Past Foreclosures and Bankruptcies
While FHA offers more flexibility than conventional loans, there are still some credit event timelines to review:
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You must be at least three years removed from a foreclosure, deed-in-lieu, or short sale.
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Two years removed if your credit score is below 580.
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Two years removed from Chapter 7 bankruptcy.
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Four years removed from Chapter 13 bankruptcy.
Being aware of these FHA credit history requirements can avoid unexpected surprises or denials during the mortgage process.
Connect with an FHA Lender
The best way to determine if you meet FHA loan requirements in Texas is to connect with an approved lender. Here are some tips for finding the right FHA lender:
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Get loan pre-approval – Many lenders offer quick pre-approvals to confirm you meet initial requirements.
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Ask about their FHA experience – Choose a lender that does high loan volumes and actively markets FHA products.
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Compare multiple loan estimates – Shop around with 3-4 lenders to compare rates and fees.
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Read online reviews – Research online reviews and complaints before choosing a lender.
With an experienced FHA lender guiding you through the process, qualifying for a mortgage in Texas can be straightforward. Just be sure to meet the minimum FHA requirements outlined above.
Alternatives if You Don’t Qualify for FHA Financing
The FHA program provides a great home financing option. But you may fall short of qualifying if your credit score or debt-to-income ratio don’t meet the requirements. Here are some alternative home loan programs to consider if you don’t qualify for an FHA loan:
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Conventional 97 – Requires just 3% down with flexible credit standards. But you’ll pay mortgage insurance unless you put down 20%.
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VA Loan – For veterans and military members. No down payment is required. Can only be used for primary residences.
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USDA loan – For moderate income borrowers in rural areas. Offers 100% financing. Credit scores as low as 640 qualify.
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Down payment assistance programs – State and local groups provide grants and low interest second mortgages to cover down payments and closing costs. Must meet income limits.
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FHA 203(k) renovation mortgage – Finance a fixer-upper home through a 203(k) FHA loan and use rehabilitation funds to make needed repairs.
Be sure to discuss these and other alternative mortgage options with your lender if you don’t initially qualify for a standard FHA loan. Homeownership may still be within your reach.
Work with a Real Estate Agent
Beyond getting pre-approved, connecting with a knowledgeable real estate agent is crucial when buying your first home. Here are some tips for finding the right real estate agent as a first-time buyer:
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Ask friends and family for referrals.
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Search online reviews before selecting an agent.
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Make sure they have extensive experience working with first-time home buyers.
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Ask if they have access to homes before they hit the public MLS.
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Inquire about down payment assistance programs they can connect you with.
The right real estate agent will guide you through every aspect of the home buying process and help you find a home that matches your budget and financing. Lean on their expertise as you navigate the journey to homeownership.
With some preparation and guidance from the professionals, you can successfully meet FHA loan requirements and become a proud homeowner in the great state of Texas.
Income and Debt Requirements
You must provide proof of steady income and employment in your FHA loan application, but the agency does not have specific maximum and minimum income requirements for this mortgage program. During the application process, you will submit paycheck stubs and tax filing information.
FHA requires a debt-to-income (DTI) ratio of around 55%. That means if you earn $3,000 monthly, you must have no more than $1,500 in debt payments. You can calculate your own DTI by adding all your monthly debt payments then dividing by your monthly pre-tax income.
Many borrowers wonder how FHA handles student loans. If you are currently repaying your education loans, the lender considers your monthly payments when calculating DTI. If your student loans are currently deferred, the lender estimates your future monthly payments at 1% of the borrowed amount for DTI purposes. In other words, FHA underwriters calculate $30,000 in deferred student loans as a $300 monthly debt.
If you’re looking for an FHA loan in Houston, you should review the agency’s maximum mortgage limits for Harris County, Texas. In 2022, you can take out an FHA mortgage in Houston of up to:
- $420,680 for a single-family home.
- $538,650 for a two-family home.
- $651,050 for a three-family home.
- $809,150 for a four-family home.
The Department of Housing and Urban Development (HUD) revises these limits each year.
You also have to pay two different types of mortgage insurance for an FHA loan. The first type, called an upfront mortgage insurance premium (UFMIP), is incorporated into the total amount of your loan. UFMIP equals 1.75% of your mortgage amount or $3,500 on a $200,000 FHA mortgage.
These charges represent part of your closing costs, which can total up to 6% of the mortgage. You must pay closing costs at settlement, but the FHA allows you to use a seller assistance grant of up to 6%.
The monthly mortgage insurance premium (MIP) is about 1% of the loan amount. This payment lasts for the life of the loan unless you put down at least 10%, in which case you must pay an MIP for 11 years.
Conventional loans also require mortgage insurance for a down payment of less than 20%. In addition, these lenders may charge higher mortgage insurance rates if you have a lower credit score.
Texas FHA Loan Requirements
- Credit Score and Down Payment Requirements
You must have a credit score of at least 580 to qualify for a Texas FHA loan to take advantage of the 3.5% down payment. However, the FHA program accepts applicants with credit as low as 500 if you make a down payment of at least 10%.
In addition to your credit score, an FHA lender will review your entire report to determine whether you can make your monthly mortgage payments. Possible red flags include a history of foreclosure, bankruptcy, collections, or late payments. However, you can potentially qualify for an FHA loan at least two years after a Chapter 7 bankruptcy or when three years have passed after a foreclosure. With a Chapter 13 bankruptcy, you can potentially get an FHA loan right away with approval from the court trustee assigned to your case.
You can use your savings, a gift from a family member or friend, or an assistance grant to make your down payment. For example, the Texas Department of Housing and Community Affairs provides access to down payment and closing cost assistance programs for qualifying applicants, while the Veteran Land Board Housing Assistance Program has similar assistance for Texas residents who are veterans.
If you plan to buy a home in the city of Houston, you may qualify for up to $30,000 in assistance from the Housing and Community Development Department. The program provides a no-interest loan that the city will forgive after five years of on-time mortgage payments. To be eligible, you must be a first-time homebuyer with an income of no more than 120% of the area median, currently up to $66,550 per year for a single-person household.
While FHA requires a down payment, you may be able to get a federally-backed mortgage in Houston with no money down. The U.S. Department of Agriculture (USDA) offers zero-down loans in certain rural zip codes, while the Veterans’ Administration has zero-down loans for those who currently or previously served in the military.
NEW FHA Loan Requirements 2024 – First Time Home Buyer – FHA Loan 2024
FAQ
What disqualifies you from an FHA loan?
Is it harder to qualify for an FHA loan?
How much income do you need to qualify for FHA loan?
How do I get an FHA loan in Texas?
Check the FHA loan limits in your area. To apply for an FHA loan, you will need a lender who issues FHA loans in Texas and you must meet the FHA Loan requirements. Getting an FHA loan is easier than getting a conventional loan, but you need still a few things to qualify. First, to qualify for an FHA loan, you’ll need a verifiable income.
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 FHA loans require a down payment in Texas?
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%. FHA no longer insures loans made to borrowers with credit scores below 500. Do FHA loans in Texas require mortgage insurance?
Do you need a credit score to get an FHA loan?
Your credit score is one of the most important factors of getting an FHA loan approval. While those with a FICO score as low as 500 points can still qualify for an FHA loan, higher credit scores will help you be more eligible for smaller down payment options.