A Closer Look At 2019’s Minimum Requirements For A Mortgage In Texas

2019 Minimum Texas Mortgage Requirements

With interest rates on the rise, you might want to seriously consider purchasing a house sooner instead of later. The next thing that you might be thinking about is whether you can qualify to get a mortgage or not given where interest rates are currently.

Although lenders have somewhat relaxed their standards since the height of the financial crisis that started ten years ago, there are certain minimum standards that you will need to meet in order to qualify for certain mortgages.

Specific financial documents, a decent debt-to-income ratio, and good credit scores are a few things that you will need for applying and qualifying for a home loan.

The specific requirements will mainly depend on the kind of loan you apply for. Therefore, in this guide, we have broken the lending requirements down for several different kinds of loan.

Requirements of FHA Loans

One of the easiest types of home loans to obtain is a mortgage from the Federal Housing Administration. Because insurance is provided on the mortgage by the FHA, quite often FHA-approved lenders can offer terms and rates that are more favorable.

Also, lenders are more comfortable with borrowers who are potentially more riskier given that 90 of the mortgage is backed up by the FHA. FHA mortgages have lower downpayment requirements which make them good for first-time homebuyers who might not have enough money in saving to make the regular 20% downpayment is when buying a house.

For FHA-approved mortgages, the following are the current minimum requirements:

Down Payment

A minimum 3.5% downpayment and credit score of 500 at least. A 10% downpayment may come from your personal bank account, a local downpayment assistance program, or gift from one of your relatives.

Debt-to-Income Ratio

The debt-to-income ratio on FHA mortgages is set by the Department of Housing and Urban Development (HUD). The front-end ratio currently is 31% with a 43% back-end. The front-end ratio only considers housing-related costs, like the monthly mortgage payment, insurance, and property taxes. The back-end ratio considers all monthly debt, which includes housing costs, credit card payments, car loans, and any other forms of recurring debt.

Residence

The house must be your primary residence for the first year at least. That includes whether you are purchasing a single-family house or a four- or two-unit property.

Employment

You are required to have proof of employment and steady income for the past two years, along with explanations if you have frequent employment changes.

Mortgage Insurance

On an FHA loan, you are required to have mortgage insurance no matter how much your downpayment is. On FHA loans you need to pay two different mortgage insurance premiums – an upfront mortgage insurance premium payment and your monthly mortgage insurance payments that are paid each month for the entire life of your loan. The upfront mortgage insurance premium that must be paid is 1.75% of the balance of your loan. It is due at closing and normally financed as part of your loan. Once you make your 3.5% minimum downpayment, then you will need to pay a yearly 0.85% fee of the total amount of your loan. That amount is divided by 12 and then is part of your monthly payments for the life of your FHA loan.

Requirements On Conventional Loans

A conventional 15-year or 30-year mortgage as requirements that are slightly stricter compared to an FHA loan. However, it does come with some longer-term benefits and flexibility.

Down Payment

There are some lenders that might let you make as low as a 3% downpayment in order to qualify to get a conventional mortgage, but you will be required to have mortgage insurance. Some low downpayment programs might have income limits, so make sure you check the address on the properties along with your loan officer to find out if there are any restrictions or not.

Mortgage Insurance

On a conventional mortgage, you are not required to carry private mortgage insurance (PMI) and pay for it every month if you can make at least a 20% downpayment on the property. However, if you pay a lower downpayment, then you will need to pay 0.15 to 1.95% of the balance on your loan in FMI fees every year.

Another benefit that conventional loans offer is that after you have the principle down to 78% of the original property value, the lender is required to stop charging mortgage insurance if you make your payments on time. On an FHA loan, when you make a minimum downpayment, the only thing that you can do to eliminate monthly mortgage insurance is refinancing your loan.

Credit Score

On a conventional mortgage, the minimum score that you need to have is 620. However, there are some lenders that might require a 640 minimum score. Remember that having a better (higher) credit score will allow you to receive a better interest rate along with a lower mortgage insurance monthly payment.

Employment

Proof of regular income is required by lenders and they will look more closely at your earnings and employment history from the last two years.

Debt-to-Income Ratio

Conventional lenders, as of 2018, allow for up to 50% DTIs in certain cases. For any with a debt ratio more than 45, there is one caveat: For people with higher debt ratios, Numerous mortgage companies now require a 700 minimum credit score.

Requirements For VA Loans

The Veteran Affairs Department offers a mortgage for active-duty military personnel, veterans, reservists, and their families. Part of the loan is guaranteed by the VA, which allows lenders to offer military personnel more favorable terms.

Certificate Of Eligibility

In order to qualify to receive a VA mortgage, you also are going to need to get a VA loan certificate of eligibility. It verifies that the military service requirements are met by the applicant in order to be eligible to get a VA mortgage. Certain identification and documents. Veterans and military personnel may apply, by mail, or via a lender after the form is completed.

Down Payment

There is no downpayment that is required.

Mortgage Insurance

There are no PMI fees that come with VA loans. However, a funding fee is charged. It is charged at closing and normally is financed with the loan amount. The funding fee amount will depend on whether or not it is the first time that the veteran is using their eligibility. If an applicant has a disability that relates to her or his military service, then the funding fee might be waived.

Credit Score

There is no minimum credit score requirement on VA loans. However, a majority of lenders funding VA loans do have a minimum 620 credit score requirement. The VA loan program just requires the lender to review the whole loan profile in order to ensure that the veteran applying for the loan has the ability to repay it.

Income

No minimum income threshold must be met, although applicants do need to provide steady income proof.

Debt-to-Income Ratio

It is recommended that your debt-to-income ratio be no higher than 41% to qualify for VA loans. A higher debt ratio might be approved since a VA lender will also look a the residual income of the veteran, which is calculated based on the borrower’s after-tax income, less expense along with a monthly maintenance calculation that is based on the number of members in the veteran’s family and size of the home.

Requirements for USDA Guaranteed Loans

A mortgage program is offered by the U.S. Department of Agriculture to give low to moderate-income families the opportunity to own their own house in designated rural areas. Applicants may relocate, improve, rehabilitate, or build a dwelling that is located in an eligible rural area. 2010 U.S census data on population is used to determine the rural designated areas.

On USDA-guarantee loans, the program backs 90% of the amount of the loan, and that enables USDA-approved lenders to take borrowers into consideration that might not qualify to get a conventional home loan. A 640 minimum credit score is required on UDA mortgage loans to be automatically approved – as long as the other requirements are met as well. However, homebuyers that have lower credit scores still might be considered for a loan that is underwritten manually.

Special eligibility requirements for your state must be met in order to qualify for a USDA mortgage. The USDA online tool can be used to determine whether or not the property is in a designated rural area. You will have to enter the address, city, and state of the house into the tool. That will confirm whether or not the house you are interested in buying is in one of the USDA designated rural areas or not.

The USDA map can be used to choose your state and then determine whether you meet the income eligibility requirements. The income limits vary based on family size, county, and city.

The homebuyer must meet the following basic requirements as well in order to qualify to get a USDA mortgage:

  1. Agree to personally occupy the house as their primary residence. The home cannot be rented out or used as a second house.
  2. Must be either a qualified alien, noncitizen national or U.S. citizen.
  3. Can incur a loan obligation legally. That just means the homebuyer hasn’t been declared to be incompetent and has the ability to enter into legally binding contracts and understand what the debt obligations are.
  4. Has not been banned or suspended from participation in federal programs.
  5. Indicate a willingness to meet their loan obligations on time.
  6. Buys a property that satisfies all of the criteria of the USDA program, including being located in a rural designated area.

Debt-to-Income Ratio

For UDA home loans, the standard DTI ratio is 29%/41% of the gross monthly income of the applicant. On a UDA loan, the maximum allowable DTI is 32%/44% of the person’s gross monthly income, when all of the applications of a loan have credit scores of 680 at least. Under some circumstances, higher ratios are allowed by the USDA on a case-by-case basis. In order to get a waiver for a higher ratio, the borrower must request it from a USDA-approved lender and have it documented by them.

Requirements For HomePossible & HomeReady Loans

HomeReady Loans

The HomeReady mortgage program is offered by Fannie Mae, which is a government-sponsored agency.

Income

The programs are designed to assist prospective homebuyers with low and moderate incomes and limited funds for a downpayment on a house.

Down Payment

A 3% downpayment is required from a gift or the borrower’s own funds.

Credit Score

A minimum 620 credit score is required.

Credit History

For homeowners lacking a credit score due to not having a credit history, a HomeReady loan can be a good solution. They can offer financial statements as a substitute such as on-time rental payments for 12 months or other types of monthly payments such as utility bill payments that don’t appear on a credit report.

Debt-to-Income Ratio

The HomePossible and HomeReady programs may be approved with up to a 50% debt-to-income ratio with strong credit along with other compensating factors like retirement funds or extra savings for reserves.

HomePossible

This program is managed by Freddie Mac.

Income

The HomePossible mortgage is similar to the HomeReady one, but there is one key difference between them. The HomePossible programs allow a borrower to include a non-borrower’s income into the financial calculations – which is income from another individual or individuals who are living in the house to count towards the total monthly income, even when those people are not on the mortgage loan. That can frequently benefit a homeowner who is taking care of a family member who lives in their home who receives Social Security or disability.

Credit

A minimum 620 credit score is required.

Down Payment

There is a 3% minimum downpayment required, and additional flexibility in terms of what the source is for the downpayment. The HomePossible guidelines allow the total downpayment now to come from sweat equity, meaning that the borrower can contribute handyman skills rather than money towards their downpayment.

Debt-to-Income Ratio

There is a 43% maximum DTI, but there are exceptions up to 50% depending on how strong the borrower’s credit and income are, and whether or not they have any extra money in their bank account (reserves) for making future mortgage payments.

Key Mortgage Documents

Before you apply for a mortgage, the process can flow a lot smoother if you organize all of the paperwork and financial documents that are typically required by lenders on the loan application.

They may include:

  • Pay stubs for the past 30 days
  • W-2’s for all jobs that go back two years
  • A signed purchase agreement with the home’s seller
  • Tax returns dating back two years
  • Bank statements for the past 60 days
  • If you are self-employed, 1099 forms
  • Homeowners insurance proof
  • Documented sources of income such as stock earnings and dividends
  • Pension statements
  • Proof of any bonus income
  • If applicable, disability or Social Security income award letters
  • Securities documents like life insurance policies, bonds, and stocks

Some lender might require written verification of your position and salary, printed on the company letterhead of your employer. The might send a form for verifying employment to the human resource department of your employer to complete.

Get Preapproved For Your Mortgage

Before shopping for a house, it is wise to find out the amount you potentially will qualify to borrow. This means you don’t have to waste your time looking at houses that are outside of your price range. When you have a mortgage pre-approval, that means that the lender has examined your current finances, income stability, and credit history, and is prepared tentatively to provide you with a loan on a house.

You will need to provide the following in order to obtain a pre-approval from your lender:

  • Your social security number and identification. 
  • All of the banks on your bank statements from the two most recent months.
  • Employment verification, which consists of either W-2’s for two years (or if you are self-employed tax returns) or a month’s worth of pay stubs.
  • Your credit report will also be pulled by the lender.

Usually, a mortgage pre-approval is good for a maximum of 90 days. Once that time has passed, a creditor will normally want to review your fiance again to see if there have been any changes.

You don’t need to worry about having several inquiries on your credit report if you obtain pre-approval from several different lenders. All of them will count as just one hard inquiry when they are done within a short period of time (typically 15 to 45 days).

Purchasing a house is a major financial commitment and culminates a lifelong dream for many people. Texas Mortgage Pros can assist you with comparing mortgage offers and products. It might be a long road to homeownership, but it doesn’t need to be a rocky one. If you arm yourself with the necessary information ahead of time about various loan programs that are available and what the minimum requirements are for each of them, and the financial documents that you will need to have, then you will have taken the important first steps towards smoother mortgage processing.

About Us

The Texas Mortgage Pros

Our team at the Texas Mortgage Pros is comprised of mortgage professionals all across the state of Texas. We are dedicated to providing all of our clients with the best service possible for all of your mortgage needs. When combined with the lowest interest rates and the multiple loan programs that are available in your local area – Houston, Austin, Dallas, the Woodlands, Tomball, San Antonio, and Spring, Texas. Our mortgage professionals have years of experience and will work personally with you to ensure that you receive a home loan that is specifically tailored to meet your expectations and situation. Whether you are consolidating debt, refinancing your existing loan, buying your first house or dream home, our highly experienced loan officers can assist you with finding the best loan programs at the lowest possible rate.

Our ultimate goal is to develop a lasting relationship with all of our clients so that we can continue providing them with outstanding service for many years into the future. Unlike many large nationwide mortgage companies, we will keep all of your information private and secure. Throughout the entire lending community, our name is a highly trustworthy one.

To speak with one of our experienced mortgage professionals directly, just call us anytime or use any of the interactive tools that we provide throughout our website. We look forward to meeting and working with you.

If you have any questions, please feel free to contact us today!

What To Watch For When Working With A Home Loan Company In Texas

Texas Loan Companies: What You Need To Look Out For

We have all been there. You have an emergency or bills to pay but have no money at all. A personal loan is the first thing that comes in mind when in a tight spot and need cash fast. With dozens of loan companies at your disposal, you are spoilt for choice, or are you? You, however, shouldn’t borrow from the first company you come across.

There are several important factors that one should consider applying for a loan from any company.

Understanding Personal Loans

A personal loan can be defined as money borrowed from a lender to be paid back with interest at a later time. Lenders have to determine a person’s eligibility for a loan before processing or approving a loan application. Lenders will look into an applicant’s:

  • Income
  • Credit history and score
  • Employment status
  • Debts
  • Expenses

After submitting the loan application papers, the lender starts processing the loan immediately, then calculates how much you should pay for the same. You will, however, get these details once the loan has been approved. Should you be unable to repay the loan in full, the lender might choose to use debt collectors or even use legal action against you.

Why Should You Get A Loan?

Most people are eligible for different types of loans. Nonetheless, you should go about applying for loans simply because you can borrow. Financial experts advise against this and only recommend going for one for genuine reasons. Personal loans should, therefore, be treated with the utmost care to avoid building a mountain of debt on yourself. You should also avoid inquiring about a loan too often, as this too can affect your credit score.

Outlined below are some of the good reasons why people get personal loans.

1. To Pay For Medical Expenses

You can never prepare adequately for a medical emergency. Even your medical insurance might not be enough to cover for all expenses. If your savings are running low and unable to settle the medical debt, you can apply for a personal loan. With the personal loan, you should be able to clear the expenses more conveniently. The loan repayment plans are more manageable as compared to having to pay a lump sum at once.

2. For Home Improvement

A home improvement project can help give your home a value boost. That said, some projects can be too costly for the homeowner, forcing him/her to seek financing instead. A personal loan will come in handy in funding some of the expensive projects such as roof replacement or extensions. Some of these improvements tend to pay the loan off in one way or another.

3. Debt Consolidation

There are times when you will have several loans to service. This means some of the loans might end up being forgotten, forcing you to make late payments. Going for a debt consolidation loan can however help you manage these loans at once. The loans are consolidated into one, meaning you only have to think of one loan from that moment on. This reduces the risk of late payments and additional charges that may come with late payments.

4. Significant Purchases

Big purchases may put a huge dent to your savings account. Some investments, such as when you need to replace appliances in the house, or need to buy a car require lots of money. You can take a personal loan to help top up the amount you already have. Many people take loans to pay for their cars and other major purchases in the house. As long as you are confident, you’ll be able to repay the loan on time, then taking a personal loan can be beneficial.

Factors To Consider When Looking For A Loan Company

As mentioned earlier, it wouldn’t be wise of you to apply for a loan from the first company you see. Shopping around can land you a better deal. Here are some of the factors you need to consider when looking for a lender.

1. Interest rates: Check to see how much the company charges in interest. Variable interest rates may seem enticing but are riskier in the end.
2. Reputation: Look for a company reputable enough to stick to the terms of the contract. In addition to this, the company shouldn’t share your information with other companies or advertisers.

3. Repayment terms: Only go for the company offering flexible repayment terms. A trustworthy company will be willing to discuss the repayment terms with the customer.

4. Upfront fees: Some companies will require you to pay upfront fees. Most of these companies aren’t worth it.

5. Customer care: Customer support is critical too. You should be able to reach the company at any time of the day when in need. They should also be responsive to inquiries.

Contact us or call The Texas Mortgage Pros today for more information! Visit our blog for more related articles.

FHA Flipping Rules

What You Need To Know About FHA Flipping

When you ignore a relatively unknown FHA flipping rule, you could be stopping a purchase where it stands. Property flipping is when an investor buys a house, makes some improvements and then sells it for a profit. If you have watched any HGTV, you will see that people can easily make a living from this.

However, there is a dark side to property flipping when looked at from the side of mortgage loans. This is particularly true with FHA. If you are a buyer, your lender and realtor should understand FHA flipping rules and guidelines. You should also know about this to ensure that you are on the safe side.

Explaining FHA Flipping Rules

A property flip is defined by mortgage lenders as a home that has been owned for a short period of time and then sold for a sizeable profit. FHA and other lending agents care about this because of the possible fraud which is linked to it. Of course, it is important to remember that this is a possible fraud.

Most of the property flips will be completely legitimate. However, when a property has a significant increase in value with almost nothing being done to it, everything becomes a bit suspicious. There are also many flipping schemes which include key parties in the mortgage, appraising and other industries which use false information to endure that purchases work.

Most of the concerns relate to the value of the property or straw buyers. A straw buyer is one who buys with no intention of living in the property. They will often buy the property at an inflated cost to create a profit for the seller. These are some of the reasons why FHA has created flipping rules.

HUD has broken the FHA flipping rules into 2 time periods. These are ownership of fewer than 90 days and ownership between 91 and 180 days.

To determine the time period of ownership, the clock will start on the deed recording date which is the sate when the seller stakes ownership. The next important date will be the date on the signed purchase agreement along with the date of FHA case file assignment. To clear the initial flip date requirement, the signed contract date and the case file ID will need to be assigned 91 days after the deed recording date. In order to clear the second flip rule period, the purchase agreement date and the FHA case number will need to be assigned 180 days later.

FHA 90 Day Flip Rule

The most restrictive of the established date ranges is the less than 90-day one. In these situations, FHA will not allow any financing of homes which are flipped in less than 90 days after the deed recording date. When there is no FHA insurance, a loan will be impossible. Of course, there are some sellers and transactions which are excluded from this rule and you need to be aware of this.

FHA 91-180 Days Flip Rule

If the property has already cleared the 90-day rule, it could still fall into the next rule time period. During this second time period, the sale of a property for FHA financing is allowed. However, there is a possible second appraisal requirement that may have to be met. The FHA will also not allow the buyer to pay for this.

The second appraisal will be required when certain conditions occur. This will be when the sale price is 100% or more than the price paid by the seller. If a higher priced loan is required and the purchase price is 20% more than the seller’s purchase price, a second appraisal is required.

An example of this will be a house which was purchased for $100,000. If this house is then sold for $200,000, a second appraisal is needed. The mortgage lender will determine the last requirement.

Preventing Appraisal Delays And Additional Costs

The Second Appraisal

In regards to the second appraisal, there are some FHA rules to know about:

  • This will need to be done by a different appraiser
  • Documentation must be included that support the increased value
  • The buyer cannot pay for this
  • A lower value will be used if the second appraisal is 5% lower than the original one
  • The lender must have a 12-month chain of title documenting resales

The FHA may require additional documentation including a second appraisal if the sale occurs between 91 and 365 days after purchase. This will also occur when the resale price is 5% or more than the lowest sale price of the property within the last 12 months. This is very rare, but it can happen.

FHA Flipping Rule Exceptions

It is important to note that there is a possibility of skipping these guidelines. There are certain transactions which are excluded from the FHA flip rules that you need to know about:

  • The property has been acquired by a relocation agency or employer in connection with the relocation of an employee
  • A resale by HUD under the real estate owned program
  • A sale by other government agencies of single-family properties via programs which are run by the agencies
  • The sale of property by a nonprofit which is approved to buy HUD-owned properties at a discount with resale restrictions
  • The sale of a property acquired through an inheritance
  • The sale of a property by a federally or state-chartered financial institute
  • The sale of a property by a state or local government agency
  • The sale of a property in a declared major disaster area upon issuance of a notice of exception from HUD

These restrictions will not apply to a builder selling any newly built properties or when buying a house for a borrower who is planning to use FHA-insured funding. All of these exceptions can be found in the FHA flipping regulations.

Other Loan Options For Flipped Properties

It is important to note that these rules only apply to FHA loans. A buyer who qualifies for other loan products could get financing even in these cases. There are a number of other loan types that can be considered such as:

These other loan options will not have the same flipping rules, but they will generally pay closer attention to the transaction if a short ownership period is in play. Underwriters will verify the length of the transactions. They will also review the appraisal thoroughly to ensure that the home actually matches the value.

Documentation Related To FHA Flipping

You might be wondering if a buyer can start the process of qualification while not being under contract. The answer is we, but if you want the purchase a flipped home, the date of the contract can cause flipping restrictions. To start the review process, the following documents should be prepared:

  • Buyer pre-approval
  • A copy of the recorded deed
  • A list of the improvements made to the property
  • An executed purchase agreement