First-Time Texas Homebuyers Should Consider FHA
Federal Housing Administration (FHA) loans are an excellent option for first-time homebuyers looking to buy in the competitive Texas market. FHA loans have low down-payment financing options with flexible underwriting guidelines that are great for Texas homebuyers with liquidity or credit issues.
FHA loans are growing increasingly popular among the first-time homebuyer demographic. The Urban Institute found in a 2019 FHA report that FHA loan products made up 12% of the overall mortgage market and financed 33% of all first-time homebuyer purchases nationwide.
Less Money Down and Flexible Credit Standards
FHA loans have one of the lowest down-payment requirements. FHA loans only require a 3.5% down payment from homebuyers, which is a great option for those looking in the Texas market. If homebuyers are unable to put down 3.5% of their own funds, FHA also allows for the down payment to come entirely (100%) from gift funds.
They also have much lower rates and flexible criteria for credit. With FHA loans, homebuyers in Texas can typically expect rates to be lower when compared to conventional loan products.
Texas homebuyers can also have credit scores as low as 580 and use “alternative credit” when using an FHA loan. Alternative credit allows homebuyers to use their cell phone bill, electric bills, etc. if they don’t have enough existing accounts on their credit report.
FHA Mortgage Insurance
FHA loans have a required Up-Front Mortgage Insurance Premium equal to 1.75% of the loan amount, which gets added to the borrower’s total loan amount.
FHA loans also have required Permanent Mortgage Insurance that is equal to 0.80% (if the LTV is 95% or less) or 0.85%of the total loan amount. These monthly mortgage insurance premiums are divided by 12 months and are a permanently fixed amount in most cases.
Mortgage insurance gives homebuyers the opportunity to purchase a house and get into the market sooner, with less money down. Many first-time homebuyers wouldn’t otherwise have the funds to buy in hot markets like Texas. While Texas homebuyers with an FHA loan will see an increase in their loan payments due to the added cost of mortgage insurance, the chance to get into the market and begin building equity outweighs the cost of those extra payments.
Questions? While this article covers the very basics of FHA loans and mortgage insurance in Texas, we can provide additional information to those who request it. You can reach us here, or at (855) 855-4491 or [email protected].
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