FHA Loan Requirements in Texas: A Complete Guide for 2024

If you want to own a home in Texas but don’t know if your credit score is good enough or not, a Federal Housing Administration (FHA) loan is your solution. FHA Loans have flexible qualification standards, are affordable, and are easier to navigate—especially if you’re a first-time buyer. 

So, here’s everything you need to know about FHA loan requirements in Texas, including eligibility criteria, how to apply, and specific requirements.

Let’s get started!

What is an FHA Loan?

FHA loans are home mortgages that require a lower minimum down payment than conventional loans. These loans are insured by the federal government but are issued by private lenders. These private lenders can be banks or any other agencies.

Because if banks issue them, they target homebuyers with low credit scores who can’t afford to put significant cash down on the purchase.

Eligibility Requirements for Government-insured Loans in Texas

So, how do you qualify for FHA loans in Texas? Well, here are certain things that would make you qualify for FHA loans, these are:  

1. Credit Score Requirements

Your credit score and history directly impact whether you’d be able to score a FHA loan or not. Your credit score and history are how a lender judges your financial situation. So, if you’ve made any late payments or poor financial decisions, you’ll have limited mortgage options.

• If you have a credit score of 620 or above, you get to pay a 3.5% down payment.
• If you have a lower credit score, you are still eligible for an FHA loan, but you’d have to pay a 5-10% down payment.

2. Income and Employment Requirements

There are no income limits. However, the lender wants to ensure you can pay your mortgage, so they want you to show proof of steady income for at least two years.

The FHA loan also requires a standard debt-to-income ratio. The ratio is calculated based on income versus monthly debts. You can divide your monthly expenses by gross income to determine your DTI ratio. The standard DTI ratio for FHA loans is 31/43. The lower your percentage is, the less risky you are as a borrower.

Loan Limits

Navigating Loan Limits for homebuyers

FHA loans have less strict requirements than conventional ones, making it the most beneficial option for you. However, there’s still a limit to how much you can receive. Knowing these limits is essential in finding and purchasing a house you can afford. 

FHA Loan Limits by Major Cities in Texas

The Federal Housing Finance Agency (FHFA) sets the maximum loan limit in Texas. These limits vary by county and change every year based on the rise and fall of the real estate market.

In 2024, the national conforming loan limit for a one-unit property is $766,550. So, the FHA loan limit for a single-family home is $498,257, with a maximum of $571,550 for high-cost areas. 

Following are the loan limits of some of the metropolitan areas:

• Austin: One unit is $498,257, two units are $637,950, three units are $771,125, and four units are $958,350.
• Dallas: One unit is $563,500, two units are $721,400, three units are $872,000, and four units are $1,083,650.
• Houston: One unit is $498,257, two units are $637,950, three units are $771,125, and four units are $958,350.

Down Payment Requirements 

1. Minimum Down Payment and Assistance Programs

There are a lot of benefits to choosing an FHA loan, but some prominent ones are;

• Low Down Payments: These loans are beneficial to everyone–especially first-time buyers. You can get a loan with as low as 3.5% down payments.
• Assistance Programs: There are down payment assistance programs and FHA loans for Texas residents. The Texas Department of Housing and Community Affairs offers these programs. 

2. Gifts and Other Down Payment Sources

Other than spending money or going through assisted programs, you can use different sources to pay off your down payment.

You can even use financial gifts from your friends to pay off your down payment. But your friends would have to prove that it was given as a gift and not a loan. Other acceptable sources include grants, savings, and investments.

The FHA Loan Application Process in Texas

1. Preparing to Apply for a Loan

The first step in applying for an FHA loan in Texas is gathering the essential documents. You’ll need your bank statements, signed tax returns for the last two years, W-2s, a copy of your social security card, and pay stubs. While at it, review your credit score and ensure there are no issues.

Because if you have a higher credit score, you will get better loan terms. 

2. Finding a Texas FHA-Approved Lender

FHA-approved lenders offer FHA loans. So, it's best to research and find the lender who gives you the best loan terms and low fees. Many lenders provide specialized programs for FHA loans, so research, compare lenders, and make an informed decision.

3. Underwriting and Approval Process

After you've compiled your documents and selected a lender, send in your loan application. Once you’ve applied, the lender will review it and decide whether you’re qualified for the loan.

The underwriting process can take several weeks, so preparing for possible delays is best.

Texas-Specific FHA Loan Benefits

1. First-Time Homebuyer Assistance Programs

Texas offers first-time buyer programs, which assist people with low or moderate incomes. These programs offer lower interest rates, deferred loan payments, and down payment grants. FHA assistance programs make owning a home a reality for many people.

2. For Buyers with Higher Debt Ratios

Compared to traditional loans, FHA loans allow people with higher DTI ratios. This means you can still secure a loan even with high debt levels. It can benefit many people in Texas who have student loans, car payments, or other debts and still dream of owning their own house.

 Loan Fees and Costs in Texas

1. Upfront and Annual Mortgage Insurance Premiums (MIP)

The Mortgage Insurance Premiums (MIP) provide a safety net for FHA lenders in case of borrower’s default. MIPs are why these loans can be so lenient in their requirements. The MIP depends on the loan amount, and lenders require you to pay 1.75% of MPI upfront. However, this is in addition to the monthly loan insurance you must pay for the life of the loan.

2. Closing Costs and Additional Fees

Like conventional loans, these loans also include appraisal fees, attorney fees, title insurance, and other fees. You can negotiate with your lender to have them cover or reduce some of the fees.

Comparing FHA Loans vs. Conventional Loans

When looking for mortgage options, people often compare the FHA loan requirement to conventional loans.

Some of the pros and cons for both of them are below:

FHA Loans

Pros

• Backed by the Federal Housing Administration (FHA)
• Lower credit score requirement
• Lower down payment
• Higher DTI ratios allowed
• Easier to get approved

Cons

• Mortgage Insurance Premiums (MPI)
• Loan limits by county
• Property standards
• Primary residence requirement

Conventional Loans

Pros

• Higher loan limits
• Flexible property types
• No upfront mortgage insurance
• Potentially lower long-term cost

Cons

• Higher credit score requirements
• Stricter DTI ratios
• Higher down payment
• Less flexibility

FHA Loans for Refinancing

If you want to refinance your FHA loan in Texas, the FHA Streamline Refinance is a simplified and accessible option without the hurdles of traditional refinancing. Given the choice to forgo a credit check and income verification, with likely no home appraisal, it's a very easy task. You just have to prove that it’s your primary residence. You can do that either through employment records or utility bills. 

FHA Loan Restrictions 

Property Requirements for FHA Loans

Your property must meet the safety and qualifying standards set by the FHA. Only then can you get a loan for it. The FHA requires a home appraisal to ensure the home’s condition is satisfactory before the loan is approved.

FHA loans also require the borrower to live in the property as their primary residence. Texas borrowers should occupy the house within 60 days of the loan closing.

Frequently Asked Questions (FAQs) 

How much can I borrow with an FHA loan in Texas?

It depends on which county of Texas you are talking about. FHA loans in Texas vary by region, with some counties having a low loan limit and some having a higher loan limit.

What credit score is needed to get an FHA loan in Texas?

To qualify for an FHA loan in Texas, you need a credit score of at least 520 to secure a 3.5% down payment. However, many lenders in Texas require a score of 620 or above.

Conclusion:

FHA loan requirements in Texas have opened the door for affordable home ownership, especially for people who otherwise wouldn't have been able to afford their own home. They offer them low interest rates, low down payments, and flexibility. 

If you want to know more about securing an FHA loan, contact us and start the process of acquiring your dream home!