When approaching buying a home in Texas, you’ll face a long list of options for financing your purchase. One option that many house hunters heavily consider, especially first time home buyers, are FHA loans. Often we hear the question, “How do I qualify for an FHA loan?”
IT may seem daunting, but with a little bit of knowledge and preparation you can be on your way to qualifying.
Here’s what you need to know.
Debt to Income Ratio
For a successful FHA loan Texas application, your debt to income ratio, or DTI, will generally need to be less than 43%. This number needs to include your potential monthly mortgage costs.
Your DTI is the percentage of your gross monthly income that you put directly towards debt payments each month. For example, if you make $5,000 per month gross, and the total you pay $2,000 towards debts, then your debts divided by your income equals a DTI of 40%.
In some circumstances you may qualify for an FHA loan with a DTI as high as 57%. This is the case only if you have a higher credit score or can put down a larger down payment. Availability will vary based on your particular chosen lender.
Credit Score
Your credit score is one of the most important factors of getting an FHA loan approval.
While those with a FICO score as low as 500 points can still qualify for an FHA loan, higher credit scores will help you be more eligible for smaller down payment options.
Potential buyers with credit scores of at least 580 can qualify for a reduced down payment, down to 3.5%. Those with a credit score between 500-579 can still qualify, but with a down payment requirement of at least 10%.
Having a higher credit score can make up for other weaker areas of your loan application.
Down Payment
A key benefit of the FHA lending program is making homeownership more accessible, especially for first-time homebuyers. The loan program does this by reducing the down payment percentage required to purchase a home compared to more traditional mortgage products.
However, this does not mean you’ll be able to avoid a down payment altogether. As such, you should plan on having savings to cover this cost before filling out an application.
Down payment percentages on an FHA mortgage can drop to as little as 3.5 % for those who qualify. However, they can be as high as 10%, depending on your credit score.
Keep in mind that money provided for closing costs does not count towards reaching your required down payment percentage.
Other Requirements To Qualify for an FHA loan
Other requirements for FHA loan products include proof of citizenship, such as a valid social security card.
The house you are buying must also be intended for your primary residence.
Additional extra requirements and fees may vary depending on the lender you choose. Your total down payment amount and mortgage insurance rates can also vary.
It’s recommended you sit down with your potential lender and discuss their specific requirements and processes for FHA loans. The FHA only backs the loan while your lender manages it.
How to Apply for an FHA loan in Texas
Applying for an FHA loan Texas is a simple process once you have the required documents collected. First, you will need to identify a lender that is approved to offer FHA loans in Texas. Luckily, many traditional banks and credit unions offer these products, as well as a growing number of nationwide lenders who allow you to apply for the loan online.
Gather the various documents to show proof that you meet the requirements of an FHA loan. Most lenders will ask for about two years’ worth of documentation. These items include pay stubs, past tax returns, W2s, bank and investment statements, and a list of debt payments to help determine your DTI ratio.
While your credit score will play an important role in the determination process, you will not need to bring one to the lender. The lender will pull their own copy with your permission before processing the application.
Once you gather all the necessary documents, you can fill out your lender’s application form for the loan. This application will go to a loan officer who will work with you more closely to determine whether you qualify for an FHA loan, as well as that the home you choose to purchase meets the more strict inspection guidelines required by the FHA.
