What is a Texas FHA Loan?
A Texas FHA loan is a type of home loan in the state of Texas. FHA loans are insured by the Federal Housing Administration (FHA). This insurance lowers the risk for lenders because if the borrower fails to pay back the loan, the FHA will step in and cover part of the difference. Lower risk loans can be provided with more favorable terms and easier conditions. Most notable among these conditions is the difference in down payments between conventional loans and FHA loans. FHA loans often only ask for a 3.5% down payment, which can be paid as a gift by a family member or friend. The small down payment makes it ideal for first-time homeowners, who do not have the sale of a previous home to cover the down payment. Below, we at Online Loans have broken down the assorted information available across the web into a convenient need-to-know to make getting you FHA loan as simple as possible. To help get a sense of what your first home will end up costing, you can also check out our mortgage calculator.
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The FHA loan program was created with the intention of helping more Americans become homeowners, to make sure the loans are still being used for those ends there are a few rule particular to FHA loans. First FHA loans can only be given to legal US residents. Secondly, the funds from an FHA loan can only be used for the borrower’s primary residence. This prevents people from using the program for real estate investment or vacation homes. To qualify for an FHA loan, you need to have a FICO credit score of at least 500. Some exceptions are made for borrowers with poor credit but a good credit history in the past two years. If you have a FICO credit score of 580or better, than you may qualify for an FHA loan with a 3.5% down payment. If your credit score is worse than 580, then you must make a 10% down payment.
Individual lenders can set their own credit requirements which are often more stringent than these minimums. In addition to the credit requirement, the FHA asks for the borrower to have maintained employment for the same employer for the last two years. The FHA also asks for a mortgage payment expense to income ratio of 31% or less, which means the monthly mortgage payment cannot be more than 31% of your monthly income. Your total fixed payment to income ratio needs to be less than 43%, meaning that the sum of all of your monthly debt payment obligations (mortgage, car loan, student loan, etc.) cannot be more than 43% of your monthly income.
Since loans are made by individual lenders, those lenders set their own rates, which leads to a fair degree of variation. In Texas, the typical range for an FHA loan is an APR between 3.8% and 4.9%. These rates are lower than the rates for most conventional loans because FHA loans are guaranteed. In general, the better your credit, the better your rates will be (check out our credit rebuilding guide).
FHA loans always have fixed interest rates. That means once the loan is agreed to the interest rate will stay constant throughout the term of that loan, no matter what changes happen to the prime interest rate. Longer term loans tend to have higher APRs because the borrower gets the stability of a fixed rate for a longer period. Smaller loans have higher APRs because the administrative costs are roughly the same for small and large loans, so it represents a high percentage of a small loan.
Maximum ($) Limits – By County
FHA loans have maximum limits set for each type of housing in each county. In Texas, the highest maximum limit is $743,100 for a four family home in one of the most expensive counties. The lowest maximum limit is $294,515 in one of the cheaper counties. Find below our customized interactive table displaying up-to-date information on the specific FHA loan limits for each home type and county in Texas.