FHA Loans

FHA Home Loan Topics Covered

What is an FHA Home Loan?

FHA home loans are backed by the Federal Housing Administration and are available exclusively through FHA-approved lenders like 1st Alliance Mortgage. These loans typically come with 15- or 30-year fixed terms and are a popular option for first-time homebuyers in Texas, as well as buyers with limited savings or lower credit scores.

When purchasing a home, buyers are usually responsible for out-of-pocket expenses such as origination fees, appraisals, and attorney costs. One major advantage of an FHA loan is the ability for the seller, builder, or lender to contribute toward your closing costs—helping reduce the amount you need to bring to the table.

FHA loans offer flexible qualification standards, including a minimum 3.5% down payment and a credit score requirement of at least 580. Unlike many conventional loan programs, FHA guidelines allow 100% of your down payment to be gifted. Acceptable gift sources include:

- A family member

- An employer or labor union

- A close friend

- A charitable organization

- A government agency or public entity offering homeownership assistance

Borrowers with credit scores between 500 and 579 may still qualify, though a larger down payment is required.

As with any mortgage, lower credit scores and smaller down payments may result in higher interest rates. Our team at 1st Alliance Mortgage can help you understand your options and find the FHA loan solution that best fits your needs.

Mortgage Insurance Premiums

Texas borrowers using an FHA loan are required to pay FHA mortgage insurance, which helps protect the lender in the event of default. FHA loans include two types of mortgage insurance premiums: an Upfront Mortgage Insurance Premium (UFMIP) and an Annual Mortgage Insurance Premium (MIP), which is paid monthly. This differs from conventional loans, which typically require private mortgage insurance (PMI).

The current UFMIP is 1.75% of the base loan amount. This fee can either be paid at closing or added to the total loan amount. The Annual MIP ranges from 0.45% to 1.05% of the loan amount each year, with the exact percentage based on your loan term, loan size, and original loan-to-value (LTV) ratio.

FHA mortgage insurance stays in place for the long term. If your down payment is less than 10%, you’ll pay MIP for the life of the loan. Borrowers who put 10% or more down will pay FHA mortgage insurance for 11 years.

How to Qualify For a FHA Loan in Texas

To qualify for an FHA loan in Texas, you’ll need to meet several key requirements. Your debt-to-income ratio (DTI) must be 50% or lower, meaning your total monthly debt obligations cannot exceed half of your gross monthly income, including debts you may not currently be paying on. You’ll also be required to pay the upfront mortgage insurance premium (UFMIP), which is typically 1.75% of the base loan amount.

Lenders will request your most recent 30 days of bank statements, along with documentation for any deposits made during that period—usually in the form of pay stubs. A steady employment history is also required. If you’re self-employed, you’ll need at least two years of documented successful business activity, supported by tax returns, a year-to-date profit and loss statement, and a current balance sheet.

Borrowers must be at least two years removed from bankruptcy, unless they can prove the bankruptcy resulted from circumstances outside their control. You must also be at least three years past any foreclosure. Additionally, FHA guidelines require a valid Social Security number, U.S. citizenship, and that the borrower is of legal age.

FHA-approved lenders use an automated underwriting system called Desktop Underwriter (DU) to evaluate factors such as your credit score, debt ratios, and available reserves. Texas lenders may also apply their own additional requirements, known as overlays, which can vary from one lender to another. Because each lender sets different terms and rates, comparing options is an important part of the process.

Types of FHA Loans

Traditional – used to finance primary residences.

Home Equity Conversion – (reverse mortgage) allows homeowners 62 years of age and older to exchange their home equity for cash while still retaining title to the home. Funds can either be withdrawn as a fixed monthly amount or as a line of credit.

203(k) Program – includes extra funds to pay for repairs and renovations to the Texas house. For this type of loan, the property may undergo two separate appraisals: an “as is” appraisal that evaluates its current state, and an “after improved” appraisal estimating the value after the work/renovations are finished.

Energy Efficient Program – includes extra funds to pay for energy-efficient home improvements (could potentially lower the cost of your utility bills).

Section 245(a) – a graduated payment mortgage (GPM) with reduced initial monthly payments that increase over time, and a growing equity mortgage (GEM) where fixed increases in monthly principal payments result in shorter loan terms. This program is for borrowers who anticipate an increase in income.

Advantages of FHA Loans

- The DTI and credit score requirements are more relaxed than those of other loan types.

- Lower down payments.

- Increased allowance for closing cost financing.

- Good for first-time homebuyers.

Frequently Asked Questions

What’s the difference between pre-qualified and pre-approved?

Pre-qualification is a determination of the loan amount you’re likely to receive. To obtain pre-qualification, you usually are interviewed by a licensed loan officer in Texas who determines the pre-qualification amount. On the other hand, to be pre-approved, you must submit an application and verify your credit and financial history. After you receive your pre-approval certificate, you’re in a stronger position to close earlier and negotiate a better price.

How long do FHA loans take to close?

The average FHA loan approval process takes between 30 to 60 days.

If my credit score is low, how can I raise it?

Paying your bills on time, reducing your credit balances, and trying to not apply for credit too often are all ways that you can raise your FICO score.

How many active FHA home loans can I have at one time?

Without the exception of certain extenuating circumstances, borrowers will likely not be approved for additional FHA loans while one is active. Special circumstances that could warrant a borrower having two or more active FHA loans include job relocations, changes in family size, and situations where a co-borrower vacates the property with an existing FHA mortgage loan to purchase a home of their own.

A FHA loan may sound great, but it’s not for everybody. In the words of the Federal Housing Administration, an FHA loan “won’t accommodate those who are shopping on the higher end of the price spectrum—nor is it intended to.”

This kind of mortgage was specifically designed for Texas buyers with low-to-moderate incomes; that being said, if you have a larger budget and are looking into purchasing a house that’s a bit pricey, then a conventional loan might better suit your needs.

1st Alliance Mortgage LLC - NMLS 1407 | 4438 State Highway 6 S, Ste. 201, College Station, TX 77845

Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov

A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov