The minimum down payment on an FHA home loan is just 3.5 percent of the purchase price, making it an economical alternative for those looking to buy or refinance a home with a minimal down payment.
What Is an FHA Loan?
FHA loans are home loans insured by the Federal Housing Administration, an agency within the United States Department of Housing and Urban Development. Because of this guarantee provided by the government that protects lenders in the event of a default or foreclosure, lending firms offer FHA home loans in Texas at borrower-friendly rates and with more relaxed requirements. Like VA loans, the Federal Housing Administration permits Texas FHA lenders to be flexible when qualifying applicants.
If you’ve been denied a conventional mortgage because of your credit history or financial capacity, the FHA loan could be your best shot at buying a home.
Do I Qualify for an FHA Loan?
Your credit score should be 580 or higher to qualify for an FHA loan with low-interest rates. Borrowers with credit scores between 500 and 579 are limited to borrowing 90 percent loan-to-value, while credit scores above 580 are eligible for the 3.5% down payment. Also, if you meet most of the requirements, the Federal Housing Administration may grant allowances to people with limited or nontraditional credit histories. However, the lender will have the last say on whether to approve or deny your loan application.
Mortgage rates and underwriting policies differ between lenders, so it is critical that you find a trusted FHA lender. As a borrower, you have the right to “shop around” and determine which deal is best for you.
How Much Money Do I Need Upfront?
If your credit score is above 580, you’ll only have to pay a 3.5% down payment for your FHA loan. This rate is significantly lower than most conventional loans, which require a 10% to 20% down payment even if you’re in a good credit standing.
Aside from the down payment, you also have to pay for closing costs, typically around 2% to 6% of the total loan amount. The good thing about FHA loans is that it allows sellers, lenders, and builders to cover some or all of the closing costs or negotiate this process. Moreover, there is plenty of FHA loan down payment assistance grants and programs in Texas to help you put up money for the upfront expenses of your mortgage.
How Much Can I Borrow?
Lenders determine the amount of your home loan based on your ability to pay, which is supported by the financial document you submitted. However, there is a maximum amount you can borrow for an FHA loan, depending on the location of the property you wish to purchase.
Every county in the United States has specific maximum loan limits set for single-family homes and 2 to 4 unit properties. The limits are assigned based on that county’s average home sales value. The base FHA loan limit for single-family residences in Texas for most counties is $420,680, but areas close to big cities tend to have much higher loan limits.
You can look up Texas FHA loan limits by county here.
Is an FHA loan right for me?
The ability to obtain an FHA mortgage with as little as 3.5 percent down puts homeownership within reach for many people, but this does not mean that FHA loans are the best option for everyone.
If you have good credit, you should be able to qualify for a conventional mortgage even if you can’t put down 20%. Similarly, if you have a large down payment saved up, you may be able to get a conventional loan and save on mortgage insurance costs even if your credit is less than perfect.