FHA Loan Requirements in Texas: Updated for 2021
FHA loans are a popular financing option among home buyers in Texas. This program appeals to first-time buyers in particular, especially those with limited funds in the bank. FHA loans offer several key advantages, including a relatively low down payment of just 3.5%. As with all mortgage programs, there are certain guidelines and FHA loan requirements in Texas. Below, we will examine some of the minimum requirements for this program.
Minimum FHA Loan Requirements in Texas
Federal Housing Administration (FHA) loans are originated by mortgage lenders in the private sector, just like most other types of mortgage loans. Insurance is what makes the program unique. The federal government partially insures FHA loans, and that’s what distinguishes them from conventional or “regular” mortgage products.
The Federal Housing Administration falls under the Department of Housing and Urban Development (HUD). Among other things, HUD establishes the minimum guidelines for this mortgage program. Here are the basic eligibility FHA Loan Requirements in Texas.
Minimum Down Payment
Borrowers who use this program to buy a home must put down at least 3.5% of the appraised value or purchase price. That’s one of the key benefits offered by the FHA loan program. It allows for a relatively low down payment, reducing one of the hurdles to homeownership.
The down payment money doesn’t necessarily have to come out of your own pocket. When using an FHA loan to buy a home in Texas, you could obtain some of your down payment funds from a third-party donor. Family members and other approved sources can contribute money to your minimum required down payment — another big advantage.
But there are requirements for this as well. Down payment gift money must be thoroughly documented. The person providing the funds must submit a signed letter stating that they do not expect any kind of repayment.
Credit Scores
Credit scores are another important requirement when using a Texas FHA loan. Your credit score shows how you have borrowed and repaid money in the past. It’s based on information contained within your credit reports.
People who typically pay their bills on time tend to have higher scores, while those with a pattern of late or missed payments often have lower ones.
When it comes to the credit score requirements for Texas FHA loans, there is one important number you should know about — 600. According to HUD, borrowers must have a credit score of 600 or higher to be eligible for the program. To take advantage of the popular 3.5% down payment option mentioned above, borrowers must have a score of 600 or higher.**
Debt-to-Income Ratios
When applying for a mortgage loan in Texas (whether it’s FHA, conventional or VA), you’ll probably encounter the term “debt-to-income ratio.” As the name suggests, this ratio compares your gross monthly income to your recurring monthly debts. It’s a risk-assessment tool.
Having a lower debt-to-income ratio can increase your chances for qualifying for an FHA loan in Texas. A higher-than-average “DTI” ratio can have the opposite effect, especially if it rises above the 50% mark. The goal here is to ensure that you, the borrower, are not assuming too much additional debt by taking on a home loan.
The debt-related requirements for Texas FHA loans are somewhat flexible. HUD allows for higher debt ratios in cases where the borrower has “compensating factors,” like extra cash reserves in the bank. Please contact us if you have questions about this or any other FHA loan requirement covered in this article.
FHA Loan Limits in Texas
Lastly, we have loan limits. When using an FHA-insured mortgage to buy a home, you’ll have to meet the loan limit requirements for your particular county. These limits represent the maximum amount you can borrow through this program.
Loan limits can vary from one county to the next, because they’re based on median home values. In 2021, the FHA loan limit for most Texas counties is $356,362. In pricier counties, like those that fall within the Austin metro area, the limit is currently set at $416,300. The Dallas-Fort Worth area has a limit of $416,300 in 2021.
Note: These figures apply to single-family home purchases in particular. There are higher caps for multi-family properties, such as duplexes and triplexes.
Have questions? Trinity Oaks Mortgage offers a wide variety of home loan options, including FHA. Please contact us if you have questions about the FHA loan requirements in Texas, or other mortgage-related topics.
** Subject to final underwriting approval.
