Minimum Texas Mortgage Requirements For 2020
If you want to purchase a home this year and wondering how to qualify for a mortgage, you can find the right loan program by learning the minimum borrowing guidelines. In 2020, mortgage options will be available at relatively higher loan amounts that indicate the increasing home prices across the U.S.
By going through the guidelines for the most popular loan types, you should know the amount of mortgage that you can qualify for.
Conventional Loan Requirements
Undoubtedly, conventional loans are the most common mortgage option, but no government agency guarantees them. Compared to the borrowing requirements for government-insured loans, Freddie Mac and Fannie Mae set conventional loan standards, which are stricter.
If you want a mortgage for a more expensive home, it’s much easier to qualify this year since loan limits are increasing up to $510,400 for a majority of the country in 2020. For conventional lending, below are the latest minimum mortgage loan requirements.
A Conventional Loan’s Current Minimum Requirements
- Down payment. For conventional loans, the minimum down payment is usually 3% and can come as a gift from a family member or simply your money.
- Mortgage insurance. The lender needs security with private mortgage insurance (PMI) for conventional loans that have less than 20% down in case you default. Each year, you’ll pay anywhere between 0.15% and 1.95% of your loan amount; however, the premium can even exceed 2.5%, especially if you have a small down payment and a low credit score. Typically, you pay the premium as part of your monthly payment, but you can also pay in a lump sum upfront during closing.
- Employment. Since lenders need proof of your steady income, they’ll review your income and employment history from the past two years. Those with variable incomes and self-employed borrowers alike will need to present extra paperwork to verify income.
- Credit score. For a conventional mortgage, the minimum score is 620. Most likely, you’ll receive a more favorable interest rate offers with higher credit scores.
- Income. There are no income limits with many conventional loans. Freddie Mac’s Home Possible loans and Fannie Mae’s Home Ready, however, demand that borrower’s incomes should fall within that area’s income limits.
- Occupancy. Generally speaking, conventional financing can be useful in purchasing a primary residence, an investment property that you can rent out, or a second home (also called a vacation home).
- Debt-to-income ratio. The measure of your overall debt divided by your specific gross income is your debt-to-income ratio (DTI). A DTI of 45% or less is much preferable to most conventional lenders but might extend it to 50% with considerably higher credit scores, along with additional cash reserves. Mostly, borrowers with DTI ratios exceeding 45% might be needed to have a minimum credit score of 740 by private mortgage insurers.
FHA Loan Requirements
One of the most accessible home loans to obtain is a mortgage-backed by the FHA or the Federal Housing Administration. Since the FHA insures the mortgage, there are more favorable terms and rates available with FHA-approved lenders, particularly to first-time homebuyers.
Borrowers trying to qualify for a mortgage for high-priced homes will have some relief in 2020. In most parts of the country, there has been an increase in the FHA loan limits to $331,760 in 2020. Affluent areas might receive even more FHA bang for the buck since the maximum loan amounts can stretch up to $765,600.
An FHA Loan’s Current Minimum Requirements
- Down payment. Whether it’s from your funds or as a gift, FHA demands a 3.5% minimum down payment. With a credit score ranging from 500 to 579, the down payment goes up to 10%.
- Mortgage insurance. There are two kinds of mortgage insurance when it comes to FHA loans. The upfront mortgage insurance premium (UFMIP) can be rolled into your particular loan and is often 1.75% of the loan balance due. As part of your monthly payment, you’ll also incur an annual mortgage insurance premium (MIP), and those costs vary between 0.45% and 1.05% of the loan amount. Regardless of credit score, FHA mortgage insurance premiums are similar.
- Employment. Typically, FHA loan requirements focus on the consistency of employment and earnings for the last two years. Job hoppers must explain gaps or changes in employment.
- Credit score. With a 10% down payment, you can have a low credit score of 500. Homebuyers will require a minimum score of 580 if they make a 3.5% down payment.
- Income. FHA loans have no income limits. In most parts of the country, the maximum FHA loan is, however, capped at $331,760 as opposed to $510,400 for conventional loans.
- Occupancy. Whether it’s a single-family or multi-unit property, the property must be your primary residence for a minimum of one year after buying it.
- DTI ratio. FHA loans have a front-end DTI ratio of 31%, while the back-end ratio is often 43%. Only housing-related costs matter with the front-end ratio, such as your insurance, property taxes, and monthly mortgage payment. Meanwhile, the back-end ratio considers credit card payments, car loans, mortgage payments, and other recurring debt payments. With proof of extra cash reserves or strong credit scores, higher DTI ratios might be approved.
VA Loan Requirements
Generally speaking, the U.S. Department of Veterans Affairs makes it much easier to qualify for a mortgage loan, especially for active-duty military personnel, eligible spouses, veterans, and reservists. There are no longer loan limits with VA mortgages in 2020. That implies that VA borrowers may be in a position to purchase homes with VA financing instead of a jumbo loan, or perhaps financing for loans that surpass conventional loan limits.
A VA Loan’s Current Minimum Requirements
- Certificate of eligibility. If you want to qualify for a VA loan, a VA loan certificate of eligibility (COE) will be necessary since it proves you satisfy the military service requirements demanded by a VA loan. Most lenders can acquire a COE online; however, veterans and military personnel can apply for one online.
- Mortgage insurance. No PMI is needed since the VA guarantees loans given to eligible borrowers.
- Down payment. For a VA loan, no down payment is needed. Lenders might, however, demand a down payment, especially if the loan surpasses standard loan limits. The source of your down payments can be your funds or simply a gift from an employer, a close friend, a relative, charity, or government agency.
- Funding fee. Many VA loans have this fee to defray the program cost to taxpayers. Generally, the amount varies depending on the down payment amount, the VA loan benefit usage, and the type of service. If military borrowers have service-related disabilities, they might be eligible for a waiver. VA funding fees jump to 0.15% for those borrowers who come up with 10% or less of the buying price. That sums up to an additional $1,500 in funding fee costs per $100,000 borrowed.
- Employment. Proof of two years of employment is necessary, and the only exceptions are recently discharged veterans.
- Credit score. Although there’s no credit score requirement with a VA home loan, VA-approved lenders need a 620 score.
- DTI ratio. 41% is the preferred DTI ratio. VA-approved lenders might approve higher DTIs, especially if the borrower has additional money leftover after-tax deductions, or has residual income, and there’s a subtraction of monthly maintenance costs. Generally, the amount required varies depending on your family size and location.
- Occupancy. Primary residences are fundamental to VA loans.
USDA Loan Requirements
Typically, the U.S. Department of Agriculture (USDA) provides a mortgage program made to allow low- to moderate-income families to purchase homes in rural areas. Apart from restrictions on the home location, USDA mortgage loan requirements include income limits.
A USDA Loan’s Current Minimum Requirements
- Down payment. For eligible USDA buyers and properties, no down payment is needed.
- Home location. The location of the home should be within one of the USDA’s assigned rural areas if you want to be eligible for a USDA loan.
- Mortgage insurance. Mortgage insurance isn’t a requirement with USDA loans.
- Guarantee fee. A 1% upfront fee is often charged, as well as an annual fee of approximately 0.35% of the loan amount. Like the mortgage insurance fee charged on an FHA loan, the annual fee is rolled into the monthly mortgage payment, and the upfront fee financed.
- Income. For USDA loans, it’s usual to have proof of income history and two years of job. Considering all household member’s income is required, irrespective if or not they apply for the loan. Income limits are also a thing with USDA loans, which vary by family size, county, and city. Using USDA’s map tool, find out your area’s income limit.
- Credit score. A minimum credit score of 640 is needed with USDA mortgage loans for automatic approval, as long as income and employment requirements are met. Homebuyers with lower credit, however, might still be approved in case a temporary hardship impacted their scores, or if the new housing payment is less compared to the amount the borrower is paying.
- DTI ratio. For USDA loans, 29% is the maximum front-end ratio, and the maximum back-end ratio is 41%. With higher DTI ratios, borrowers might still qualify with a stable income history, large cash reserves, and a credit score ranging around 680 or higher.
- Occupancy. Only primary residences matter with USDA loans.