Planning to Apply for an FHA Loan? Read this First!

The FHA is a mortgage loan program that is administered by the Federal Housing Administration. If you live in and around Texas, buying a home may not be a challenge; thanks to the thriving housing market of the state, and affordable home loans in Texas make living here an attractive proposition. Home loan options such as FHA have become popular among the homebuyers due to their low down payment requirement, attractive interest rates, and flexible lending regulations. If you are a first-time home buyer in Texas, an FHA loan is worth considering. However, before you apply for an FHA loan, it is essential to have some basic understanding about this financing option. On that note, let’s take a look at the finer lines of FHA home loans in Texas. 

 

Low Down Payment

One of the most attractive features of an FHA loan is that it requires just 3.5 percent down payment of the purchase price of a property. This percentage can be as high as 20 percent in the case of conventional loans. FHA borrowers have the flexibility make the down payment through gifts from family members towards the purchase of the house. Other allowed sources are grants from the state or local government down-payment assistance program.

Lenient Credit Score Requirement

People with less than adequate credit scores may qualify for an FHA loan. An FHA loan applicant, for instance, needs a credit score of 600 or more to get a mortgage with down payment as low as 3.5 percent. You need to make a minimum down payment of 10 percent if your credit score is below 600. The Federal Housing Administration allows prospective homebuyers, who have “non-traditional credit history or insufficient credit” to apply for this loan under specific circumstances. It is ideal to seek the help of a specialty mortgage firm to find out if you qualify for an FHA loan.

Closing Costs Included

If you fulfill loan-to-value (LTV) maximum guidelines, you will be able to finance a part of closing costs associated with FHA loans. You can roll out a specified amount of closing costs into your new FHA mortgage loan if your loan along with closing costs don’t exceed 96.5 percent of the fair market value (FMV) or selling price of the home; whichever is less. FHA closing costs are just like the expenses that borrowers incur on other mortgage loans. These closing costs include points, recording, title examination, title policy, and legal fees.

Debt-to-Income Ratio

If you are one of those FHA loan applicants with a high debt-to-income ratio, you may still qualify for this loan. You should, however, provide evidence that you can afford to make monthly payments. The FHA is more flexible with debt-to-income ratio limits as compared to other loans. The maximum limit of mortgage payment-to-income ratio is 29 percent while the total fixed payment-to-income ratio has a maximum limit of 41 percent.

Two-Part Mortgage Insurance

FHA loans need you to pay for two mortgage insurance premiums. The first is the upfront premium, which is 1.75 percent of the amount of the loan. This premium is often rolled into the loan amount to be paid by the lender. The second is the annual premium that you need to pay along with your monthly loan repayments. In this context, it is worth mentioning that the last FHA annual MIP rate was updated to 0.85 percent in January of 2015.

Conclusion

Now that you know almost everything about FHA loans, it is the time that you fulfill your homeownership dream. If you are looking for home loans in Texas, but utterly confused about the application process, consult a reputed mortgage consultant. A specialty mortgage consulting firm can guide you through the application process and help you secure an FHA mortgage loan seamlessly. Before applying, ask as many questions as possible to clear all your doubts.