FHA Loans in Texas

FHA Loans in Texas are backed by the Federal Housing Administration (FHA) – a federal agency within the U.S. Department of Housing and Urban Development (HUD). With only as little as 3.5% down payment, Alexdoesloans can help you take out Texas FHA loan program to start building equity in your house. In fact, even Texas mortgage borrowers with low credit scores and first-time home buyers can easily qualify without any lending fees!

About Federal Housing Administration (FHA) Loans in Texas

The Federal Housing Administration Loans or FHA Loan Programs are basically designed to help low- and moderate-income families who don’t meet the conventional loan requirements. The federal government does not loan money to borrowers. Instead, it provides a protection against losses through mortgage insurance premium (MIP). With MIP present, the chances of mortgage lenders providing insured Texas FHA home loans are high. That comes with lower interest rates and looser standards to qualify.

Nowadays, FHA loans in Texas are more popular, especially with the first-time home buyers. In fact, there are mortgage borrowers eligible for conventional loan but still choose an FHA home loan.

Texas FHA Loans Advantages

Available to all Texas residents, FHA loan programs are especially beneficial to individuals who have less available cash. This loan program is one of the easiest types of loan to qualify for. In fact, FHA and HUD have a total of more than 34 million insured homes since 1934. That makes them the largest mortgage insurer in the world.

1) Lower down payment and lower credit scores

FHa loan offers several benefits to first-time home buyers as it requires only 3.5% down payment and offers lower credit qualifications. If you have a credit score of at least 580, you can still qualify for an FHA loan and borrow up to 96.5% of the home value. However, if your credit score falls between 500 and 579, you can either perform ways on how you can improve your credit score before applying or settle a 10% down payment.

People with low or bad credit, went through bankruptcy or have been foreclosed upon can still qualify for an FHA loan program in Texas.

2) Applicants with no credit scores are also allowed

An FHA borrower without bank credit report qualifies for Texas FHA loan too! In fact, FHA lenders in Texas are prohibited by the U.S Department of Housing and Urban Development (HUD) from disregarding FHA application based solely on the borrower’s lack of credit history.

This type of loan can be a huge advantage if you never had credit scores due to lack of borrowing or credit card usage in the past. Alternatively, the borrowers may use the payment histories on utility bills, car insurance bills, cell phone bills, and apartment rent to build non-traditional credit.

3) 100% gift funds for the down payment and closing costs

In FHA loan, your entire down payment for a home may come from a gift. It can be a gift from your parents or another family member, an employer, an approved charitable group, or a government homebuyer program. Keep in mind though that there is a process to follow for gifting and receiving funds.

4) Texas FHA loans allow higher debt-to-income ratios

Calculating your debt-to-income (DTI) ratio roots from two factors – debt payments and before-tax income. For example, if you are earning a monthly income of $5,000 and your total debt payment is $2,000, your DTI will be 40%.

As compared to other loan programs, FHA can be more lenient when it comes to this area.

Most of the conventional mortgage programs like those offered by Fannie Mae & Freddie Mac, only allow DTI ratios between 36% and 43%.

Down payments less than 25%, for instance, Fannie Mae lets you go to 43% DTI for FICOs of 700 or up. However, many are not granted with conventional loans given a high debt ratio.

According to the ICE Mortgage Technology, 2021 showed that the average DTI for closed conventional purchases was 35% compared to 44% for FHA loans.

5) Extended loan sizes are allowed

FHA loan limits can be extended where home prices tend to be more expensive. This results to buyers financing their home using FHA even if the home prices increased in certain high-cost areas.

A conventional loan or jumbo loan helps in cases where your area’s FHA’s loan limits are too low for the type of property you’re buying.

6) You can lower your rate using FHA Streamline Refinance

Homeowners backed by the FHA loan in Texas have access to the FHA streamline refinance. An exclusive FHA program that offers one of the simplest, fastest, and most affordable ways to refinance.

FHA Streamline Refinancing requires no credit score checks and income variations, and home appraisals are completely waived. Additionally, homeowners who have mortgage pre-dating June 2009 can get access to reduced FHA mortgage insurance rates.

Requirements for an FHA Loan Application

• To start, a Texas lender checks the mortgage applicant if he has a valid Social Security number. The borrower must also be a lawful resident of the U.S. and be of legal age enough to sign the mortgage.
• Evidence of recent and steady employment. The borrower may document his tax returns and the current year-to-date balance sheet and profit-and-loss statement. If you are a self-employed individual for more than a year but less than two years, you can still qualify. As long as you can provide evidence of solid work and income history in the same or related occupation for the two years prior to self-employment.
• A minimum of 3.5% down payment should be made. Down payment may come from your own savings or a gift from a family member.
• A property appraisal from an FHA-approved appraiser should be presented.
• The new FHA loans are only available for primary residency occupancy.
• While Texas FHA loans allow those who went through bankruptcy, there are still certain protocols to observe. For instance, the borrower must be two years out of bankruptcy and have re-established a good credit. We can make an exception on some instance if you are out bankruptcy for more than one year. An instance where there are extenuating circumstances beyond your control that caused the bankruptcy, and you managed your money in a responsible manner.

• In most cases, you must be out of foreclosure for three years and have managed to improve your credit. We can make an exception if there were extenuating circumstances and you have improved your credit. However, if you cannot sell your home due to relocation, this does not qualify as an exception to the three-year foreclosure guideline.
• Typically, your front-end ratio should be on the lower side of your gross income. Take note that front-end ratio sums up your mortgage payment plus HOA fees, property taxes, mortgage insurance and home insurance. A high percentage may get you approved. However, your lender must provide justification as to why they think the mortgage poses an acceptable risk. Any compensating factors used for loan approval must also be included.
• Lastly, your back-end ratio should be closer to 43% of your gross income. Back-end ratio includes mortgage plus all your monthly debt like credit card payment, car payment, student loans, and others. A high percentage of 56.99% may still get you approved. However, your lender must justify as to why they believe the mortgage poses an acceptable risk. Any compensating factors used for loan approval must also be included.

Types of FHA Loans in Texas

Traditional Mortgage – An FHA mortgage in Texas that finances a primary residence.

FHA 203(k) Improvement Loan – A loan type that factors the amount you borrowed into the cost of certain repairs and renovations. It works best for people who are open to purchase a fixer-upper and build equity into their house.

FHA Energy Efficient Mortgage – Works pretty similar like the FHA 203(k) improvement loan program. However, this loan type focuses on upgrades that can lower utility bills such as new insulation, solar, or wind energy systems.

Home Equity Conversion Mortgage – Senior citizens aged 62 and above can convert their home equity into cash while retaining its title. This reverse mortgage program makes it possible for homeowners to withdraw the funds monthly in a fixed amount, a line of credit, or a combination of both.

Section 245(a) Loan – This type of FHA loan program works best for borrowers expecting their incomes to increase. There are two mortgages that promise shorter loan terms – Graduated Payment Mortgage (GPM) and Growing Equity Mortgage (GEM). GPM comes with lower monthly payments that moderately increases over a period of time. On the other hand, GEM comes with a monthly increase over time according to a set schedule.

What Types of Home Qualify for an FHA Loan?

A property financed by an FHA loan program must be a principal residence and owner-occupied. That being said, you cannot apply for Texas FHA loan intended for an investment property or rental property.

Below are the property types allowed for FHA financing: 

• Detached Houses
• Semi-detached Houses
• Townhouses
• Rowhouses
• Condominiums within FHA-approved condo projects

In addition, an appraisal from an FHA-approved appraiser together with the certain minimum standards for home will be required. In cases where the home does not meet the standards and the seller disapproves the required repairs, you must pay for the repairs at closing. The funds then will be held in escrow until the repairs have been made.

Check out the premium costs for FHA loans by visiting the U.S. Department of Housing and Urban Development.

Conclusion

Texas FHA Loan Programs are ideal for people who are in the path to homeownership but with limited cash saved for down payment or low to no credit scores. Even first-time home buyers see this mortgage loan program as the best option due to its low down payment required and easier credit standards.

Looking for a Texas FHA loan mortgage lender? Call Alex Does Loans today or quickly fill out the form below for a FREE Quote!