An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Because the government backs a portion of the loan, lenders can offer more flexible qualification standards, making FHA loans one of the most accessible paths to homeownership in Texas, especially for first-time buyers or those with less-than-perfect credit. You can qualify with a credit score as low as 500, and down payments start at just 3.5%.
How FHA Loans Work
You don’t borrow directly from the government. Instead, you apply through a private lender (a bank, credit union, or mortgage company) that has been approved to issue FHA-insured loans. The FHA’s role is to guarantee a portion of the loan, which protects the lender if you default. That guarantee is what allows lenders to accept lower credit scores and smaller down payments than they would on a conventional mortgage.
In exchange for that government backing, you pay mortgage insurance premiums, both upfront and monthly. These premiums fund the FHA’s insurance pool and are the main trade-off for the easier qualification requirements.
Credit Score and Down Payment Requirements
FHA qualification tiers are straightforward. If your credit score is 580 or higher, you can put down as little as 3.5% of the purchase price. On a $250,000 home, that works out to $8,750. If your score falls between 500 and 579, you’ll need a 10% down payment, which on the same home would be $25,000.
Your debt-to-income ratio (the percentage of your gross monthly income that goes toward debt payments) should ideally be 43% or lower. Some lenders will approve higher ratios if you have strong compensating factors, like significant cash reserves or a long employment history, but 43% is the standard benchmark.
These are FHA minimums. Individual lenders in Texas may set their own higher thresholds. It’s common for lenders to require a 580 or even 620 minimum score, even though the FHA technically allows 500.
Loan Limits in Texas
FHA loans have a maximum amount you can borrow, and these limits vary by county based on local home prices. HUD sets a national floor and ceiling each year, then calculates each county’s limit at 115% of the area’s median home price, as long as that figure falls between the floor and ceiling.
Most Texas counties fall at or near the national floor for single-family homes, since median prices across much of the state sit below the threshold that would push limits higher. However, counties in and around major metro areas like Austin, Dallas-Fort Worth, Houston, and San Antonio may have higher limits reflecting more expensive housing markets. You can look up the exact limit for any Texas county on HUD’s mortgage limits page.
Mortgage Insurance Costs
FHA mortgage insurance has two components, and understanding both is important because they add meaningfully to your monthly payment.
The upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount. On a $240,000 loan, that’s $4,200. Most borrowers roll this cost into the loan rather than paying it out of pocket at closing, which means it increases your loan balance and the interest you pay over time.
The annual mortgage insurance premium (MIP) is paid monthly as part of your mortgage payment. For a typical 30-year loan with a down payment of 3.5%, the annual rate is 0.85% of the loan balance. On that same $240,000 loan, you’d pay roughly $170 per month in MIP. If you put down at least 10%, the annual MIP drops to 0.80% and falls off after 11 years. With less than 10% down, you pay MIP for the entire life of the loan.
This is one of the key differences from conventional mortgages, where private mortgage insurance can be canceled once you reach 20% equity. With most FHA loans, the only way to stop paying MIP is to refinance into a conventional loan once your equity and credit profile support it.
Texas Down Payment Assistance Programs
Texas offers state-run programs that pair with FHA loans to reduce or cover your down payment and closing costs. The Texas Department of Housing and Community Affairs (TDHCA) runs several options worth exploring.
- My First Texas Home: Designed for first-time buyers, this program provides down payment and closing cost assistance alongside a competitive-rate mortgage.
- My Choice Texas Home: Open to both first-time and repeat buyers, offering similar down payment help without the first-time buyer restriction.
- Texas Mortgage Credit Certificate Program: A federal tax credit that lets you claim a portion of your annual mortgage interest as a dollar-for-dollar tax credit, reducing your federal tax bill each year you own the home.
These programs are administered through a network of approved lenders, so you’ll need to work with a participating mortgage company. Income limits and purchase price caps apply, and they vary by household size and location within the state.
FHA Property Requirements in Texas
The home you’re buying has to meet FHA minimum property standards, verified through an FHA appraisal. This is separate from a home inspection (which is optional but recommended). The appraiser checks that the property is safe, structurally sound, and livable. Specific requirements include:
- Foundation and structure: The foundation, exterior walls, and roof must be undamaged and functional. In Texas, foundation issues caused by expansive clay soils are common, and significant cracking or shifting can flag a property as needing repairs before the loan will be approved.
- Roof condition: The roof must have remaining useful life and no active leaks. Texas heat and hail storms take a toll, so this is a frequent point of negotiation between buyers and sellers.
- Utilities: Gas, electricity, water, and sewage must all be functioning. The home needs a permanent heating system capable of adequately heating the property.
- Safety hazards: No exposed wiring, no chipping or peeling lead-based paint, no missing handrails on steep staircases, and no wood-destroying insect infestations (termites are a real concern in much of Texas).
- Access and ventilation: The property needs safe access, adequate attic accessibility, and natural ventilation in crawl spaces.
- Water: The home must have access to potable (drinkable) water.
If the appraisal turns up issues, the seller typically needs to make repairs before the loan can close. Alternatively, the buyer and seller can negotiate credits or the buyer can walk away, depending on the purchase contract terms.
Who FHA Loans Work Best For
FHA loans make the most sense if you have a credit score below 700, limited savings for a down payment, or a higher debt-to-income ratio than conventional lenders would accept. They’re particularly popular with first-time Texas homebuyers who haven’t had time to build large savings or establish lengthy credit histories.
If you have strong credit (740 or above) and can put down at least 5%, a conventional loan may actually cost less over time because you’ll avoid the lifetime MIP requirement. The best approach is to get quotes for both loan types from your lender and compare the total monthly payments, including insurance, side by side.