Comprehensive Texas FHA Loan Services

What is an FHA Loan?

An FHA loan is a government-insured mortgage designed to make homeownership accessible for more people, especially first-time homebuyers or those with less-than-perfect credit. These loans are insured by the Federal Housing Administration (FHA), which reduces the lender’s risk in case of borrower default.

At Herring Bank, FHA loans are easy to qualify for with as little as a 3.5% down payment, and no lender fees. This program was created during the 1930s to provide stability during economic challenges and continues to make homeownership affordable today. FHA loans are a great option for borrowers who need a low down payment and flexible credit requirements.

Advantages of FHA Loans with Herring Bank

FHA loans offer a range of benefits, including:

  • Low Down Payment: Only 3.5% is required, making it easier to buy a home.
  • Flexible Credit Standards: Ideal for borrowers with lower credit scores or limited credit history.
  • Assumable Loans: FHA loans can be transferred to a buyer, offering flexibility if you sell your home.
  • Accessible for Challenging Financial Histories: Even those who have experienced bankruptcy or foreclosure may still qualify.
  • Gifted Down Payments: Down payment funds can come from family gifts, making homeownership even more attainable.

FHA Loan Requirements

To qualify for an FHA loan with Herring Bank, borrowers must meet these criteria:

  • Employment History: Steady work history or two years with the same employer.
  • Legal Residency: A valid Social Security number and legal U.S. residency are required.
  • Down Payment: A minimum of 3.5% is needed, which can be gifted by family.
  • Primary Residence: FHA loans are available only for homes used as your primary residence.
  • Property Appraisal: Homes must be appraised and meet FHA standards.

Debt-to-Income Ratios (DTI)

FHA loans have specific debt-to-income ratio requirements:

  • Front-End Ratio: Mortgage payments (including HOA fees, taxes, and insurance) typically cannot exceed 31% of gross income. Exceptions up to 46.99% may be possible with strong compensating factors.
  • Back-End Ratio: Total monthly debt (including credit cards, car payments, etc.) should not exceed 43% of gross income. Exceptions up to 56.99% may be allowed with proper justification from the lender.

Post-Bankruptcy and Foreclosure Requirements

  • Bankruptcy: Borrowers typically must be two years out of bankruptcy and have re-established good credit. Exceptions may be made after one year with extenuating circumstances.
  • Foreclosure: Borrowers usually must be three years out of foreclosure, with exceptions for certain uncontrollable situations.

FHA Property Standards

Homes purchased with an FHA loan must meet minimum safety and livability standards. If the property doesn’t meet these standards, repairs must be completed before closing. Funds for these repairs can be held in escrow until completed.

FHA Loan Limits

FHA loan limits vary by county and are based on the area’s housing market. In some counties, you may qualify for a higher loan amount to match local home prices. To explore loan limits and options in your area, contact Herring Bank today!

Why Choose Herring Bank for Your FHA Loan?

At Herring Bank, we prioritize personalized service, competitive rates, and fast approval processes to help you secure the financing you need. With decades of experience in Texas, we’re committed to making homeownership a reality for all.

FHA Loan Benefits vs. Conventional Loans

When choosing between an FHA loan and a conventional loan, understanding the key differences can help determine the best option for your financial situation. Here’s how FHA loans stand out:

1. Lower Down Payment Requirements

  • FHA Loans: Require as little as 3.5% down, making them accessible for buyers with limited savings.
  • Conventional Loans: Typically require a minimum 5% to 20% down payment, which can be a barrier for many first-time buyers.

2. Flexible Credit Score Requirements

  • FHA Loans: Designed for borrowers with lower credit scores. Many lenders approve FHA loans with scores as low as 580 (or even 500 with a higher down payment).
  • Conventional Loans: Often require a credit score of 620 or higher, making them harder to qualify for if your credit isn’t strong.

3. Lower Barriers for Financial Setbacks

  • FHA Loans: Offer leniency for borrowers who have experienced financial difficulties, such as bankruptcy or foreclosure.
  • Conventional Loans: Require stricter waiting periods after these events, often making it harder to qualify.

4. Assumable Loans

  • FHA Loans: Can be assumed by a buyer, potentially saving money on interest rates if market rates rise.
  • Conventional Loans: Typically cannot be assumed, requiring new financing.

5. Higher Debt-to-Income (DTI) Ratios Allowed

  • FHA Loans: Allow a DTI ratio up to 56.99% with compensating factors, giving more flexibility to borrowers with higher debts.
  • Conventional Loans: Usually cap DTI ratios at 43%-50%, depending on the lender.

6. Mortgage Insurance Costs

  • FHA Loans: Require mortgage insurance premiums (MIP) for the life of the loan (or until refinancing). While this adds cost, it allows borrowers with low down payments to qualify.
  • Conventional Loans: Private mortgage insurance (PMI) is required if the down payment is less than 20%, but it can be canceled once you reach 20% equity.