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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
FHA Loan Requirements to Qualify in Texas
If you are looking to buy a new home and have decided to go with an FHA loan as an option for you, this post is for you. In today’s post, we will discuss FHA loan requirements in Texas.
FHA loans are fantastic loans. They are loan programs created by the government some years ago to mainly help people to get into homeownership for the first time. FHA was the first real first time home buyer program.
However, now the FHA is moved into such an extensive program that so many lenders carry it not only for first time home buyers.
FHA loan requirements are tremendous, and the rules on how you can get an FHA loan makes the program accessible for a lot of people.
There are many pros and some cons of using an FHA loan, however, we will mainly talk about the FHA requirements for getting one for you.
FHA Requirements
Down Payment & Credit Score:
When we are talking about FHA loan requirements in Texas, two important things that borrowers look at are down payments, and the minimum credit score required.
For FHA loans, the minimum down payment you are allowed to do is 3.5% as long as your credit score is 580 and above.
That is one of the lowest down payments you can get outside of conventional loans.
However, you would require credit scores better than 580 in the case of conventional loans. 3.5% is a fantastic option if you have a credit score of 580 and above.
Debt to Income Ratio
Also, in regards to FHA loan requirements, the debt to income ratio is a lot more lenient compared to the conventional loans.
The conventional loans tend to be a little bit strict on your credit score, debt to income. FHA loans will allow borrowers with debt to income up to 56% most of the time.
Most of the people would not know their debt to income ratio off-hand; however, 56% is a pretty high number.
This means that if you have high debts, FHA loans allow some more leniencies in terms of debt to income ratio.
Property Appearance:
The next FHA loan requirement is to do with the property appearance. It is not how the property looks cosmetically, but FHA is concerned about property requirements when it comes to health and safety standards.
Conventional loans are a lot more lenient on what you can buy.
For example, most people would look to buy foreclosed properties with conventional loans; however, FHA is more strict. FHA wants to make sure everything in the home meets their health and safety standards.
This means you can’t have things like missing rails on steps; you can’t have chipping paint, can’t have broken windows, you cannot have things torn down, etc.
You need to make sure that your home has no health and safety issues. And if there is any possibility of it, then the FHA appraiser is going to call out and want it fixed before you move into the home.
If you decide to get an FHA loan, the FHA loan requirement s for the property with some restrictions.
Your trusted realtor and your loan officer can help you navigate some of those restrictions.
Closing Costs Payments:
As far as the FHA loans requirements for assets, FHA allows you to take all the funds needed as a gift.
For example, if your down payment and the closing costs are going to cost you somewhere around $10,000 out of pocket, you are allowed to get a gift from a family member for that entire amount.
Some loan products don’t let you get a gift for all of it; some times, there are specific requirements.
However, in the case of an FHA loan, you are allowed to get the gift for the full amount of the down payment and closing costs as well.
Mortgage Insurance:
Finally, one of the most significant drawbacks is the mortgage insurance requirement on FHA loans.
They are fantastic loans. However, they are given by the lenders across the nation, but the federal government is the one who backs these loans. It is called an insured mortgage.
This means that the government makes sure that if the lenders ever have to foreclose on a property, they will get their money back because the government is ensuring it.
So the person who has to foot the bill for the insurance is you. That comes in two ways, and the first way is in which you have an upfront mortgage insurance premium.
It means that you take your initial loan amount, and FHA is going to charge 1.75% and add it to your loan.
The second way is you have to pay monthly mortgage insurance over the life of the loan. This mortgage insurance will not fall off unless you put 10% down.
If you put 10% down, your mortgage insurance is dropped off after 11 years. But if you put less than 10% down, the mortgage insurance will be there for the life of the loan.
Conclusion
So you have great flexibility, but it comes with the cost of the mortgage insurance.
Another pro to offset the cost of mortgage insurance is since the government backs it, you usually can get low-interest rates than any other loans in the market.
The reason why the interest rates are low is that the lenders have lower risk since the government insures the money. Overall, FHA loan requirements are pretty lenient.
The best way to figure out if FHA is the right loan for you is to talk with your trusted mortgage advisor and see what options you have available and compare conventional loans to the FHA in terms of overall costs.
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