FHA Loans In El Paso

What is an FHA Home Loan?

A government-backed mortgage insured by the Federal Housing Administration is an FHA loan. FHA home loans are particularly well-liked by first-time homeowners since they have lower minimum credit score requirements and down payments than many conventional loans.

How Does an FHA Loan Work?

FHA loans are available with fixed interest rates and periods of 15 and 30 years. To help borrowers who might not be eligible for private mortgages have an opportunity to become homes, the agency has flexible underwriting guidelines.

The mortgage insurance premium, or MIP, is a fee paid to the Federal Housing Administration, which insures the loan against borrower default in the future. There are two types of mortgage insurance, upfront and monthly.

• Upfront Mortgage Insurance Premium – The borrower pays 1.75 percent of the loan amount, and borrowers can incorporate the premium into the total amount borrowed.

• Annual Mortgage Insurance Premium – The borrower will be charged an annual MIP rate of 0.85%, divided into 12 equal monthly installments.

Texas FHA Loan Requirements

• Credit

A credit score of 580 is required on all FHA loans to qualify for a 3.5% down payment. However, borrowers with scores below 580, down to 500, may still be eligible with a minimum 10% down payment, and certain restrictions will apply to the loan.

• Income 

Lenders base their decision on a borrower’s ability to make a comfortable mortgage payment and qualify for a specific loan amount largely on their debt-to-income ratio. There are two types of DTI ratio, front-end, and back-end.

• • Front-End Ratio – Your monthly gross income is calculated and divided by the estimated mortgage payment, taxes, insurance, and MIP to get your front-end debt-to-income ratio. Only the debt related to home is included in this computation. According to FHA regulations, the maximum front-end ratio is from 31% to 40%, depending on the borrower’s credit rating.

• • Back-End Ratio – Your total debt-to-income ratio is what the back-end ratio is. This includes any additional consumer debt on your credit report and projected housing debt. If your income levels are high enough, it will come down to the back-end ratio. The acceptable back-end ratio is 45 – 55%, depending upon your credit score.

• Assets

FHA loans require a 3.5% down payment for borrowers with a credit score of 580 and up. To close the loan to buy a house, all borrowers must show where the funds are coming from. Depending on the borrower’s circumstances, they may be required to carry reserves. 

The equivalent of one month’s mortgage payment is one month’s reserve (principal, interest, taxes, insurance, flood insurance, HOA dues, and mortgage insurance). According to FHA criteria, reserves are not necessary to be eligible for a loan. Based on the borrower’s credit, the reserve requirement is determined case-by-case basis.

Apply for an FHA Loan in El Paso

FHA loan is the easiest and most lenient among all loan programs available in El Paso. Call us at (915) 283-3949 to speak with our FHA Loan Specialists on how to qualify for an FHA loan.