Buying a home is one of the most exciting phases of one’s life, but it’s a decision that needs a lot of thought and deliberation – especially if you’re taking out a loan.
FHA loans make a fantastic option for first-time homebuyers with their low down payment rate of 3.5% and more relaxed qualification process. Because of the FHA home loan program, people with less-than-perfect credit now have the opportunity to become homeowners.
Are you interested in FHA loans? Read on to learn more about applying for an FHA loan in Texas.
What is an FHA loan?
The FHA loan is a mortgage insured by the government thru the Federal Housing Administration (FHA) and offered by FHA-approved lenders across the country. FHA loans allow individuals with lower incomes and unideal credit situations to get approved for a home loan that they might otherwise be denied.
Unlike conventional loans, FHA loans qualify people with lower credit scores and require lower down payments. They are a cheap alternative for many homebuyers.
How FHA Loans Work
If you default on your FHA loan, the FHA would be obligated to pay out the remaining balance of your mortgage. So, to lessen the risk and at the same time make the loan more accessible to borrowers, the FHA requires you to pay mortgage insurance.
For FHA loans, borrowers are required to pay for two types of mortgage insurance:
1. A one-time upfront mortgage insurance fee of 1.75 percent of the total loan amount is financed or paid in cash when the borrower receives the loan.
2. An annual mortgage insurance payment ranging from 0.45 percent to 1.05 percent of the loan amount. The yearly premium is spread out over 12 months, with payments made monthly and, in most cases, for the whole term of the loan.
Qualifying for an FHA Loan in Texas
FHA loans are typically easier to qualify for than conventional loans because the government insures the loan against future default. Moreover, FHA loans are not exclusive to first-time homebuyers. Current homeowners and repeat buyers may be eligible as well.
The following are common prerequisites for obtaining an FHA loan in Texas:
- A credit score that passes the lender’s minimum standards (ideally, 580 or higher)
- A good payment history
- No history of bankruptcy in the last two years
- No record of foreclosure in the previous three years
- A consistent source of income and stable employment
- A debt-to-income ratio of less than 50%
- The home must be your primary residence
Applying for a Texas FHA Loan
It’s easy to apply for an FHA loan in Texas. To get started, follow the steps below:
- Check your credit score.
Your credit score will affect whether or not you qualify for a loan and the size of your down payment. Applicants with credit scores higher than 580 are eligible for the 3.5% down payment.
- Assess your homeownership expenses.
Factor in all of the expenses associated with owning a home: loan payments, mortgage insurance, property taxes, Homeowners Association (HOA) fees, etc. Check to see if you can afford all of this on top of your current debts and expenditures.
- Determine your debt-to-income ratio.
Divide your monthly debt payments by your income, including your mortgage payment, property taxes, insurance, and HOA fees. You’ll want to ensure that your debt-to-income ratio is low enough to qualify for an FHA loan.
- Save enough money for the down payment.
Depending on your credit score, you’ll need anywhere from 3.5 percent to 10% of the buying price as a down payment. You must also be able to cover other fees to be paid during the closing, such as closing costs and prepaid items.
- Get pre-approved for an FHA loan.
Prequalify with an FHA-approved lender in your area. If you qualify, you’ll be given a letter that you can present to sellers when making an offer on a home.
Getting an FHA home loan is relatively simple when you understand how the process works. And if ever you find specific details of the loan difficult to understand, you can always consult with a mortgage loan officer or an experienced FHA loan agent near you.
