Conventional Loans Texas
Texas, with its energetic towns and vast countryside, offers excellent opportunities for homebuyers. With excellent conventional loan options, District Lending can help you purchase a primary residence, a holiday home, or an investment property on attractive terms.
With an average household income of $52,532, most Texans need a conventional mortgage loan to purchase a house. In Texas, conventional loans up to the FHFA limit of $766,550 cover most properties, as even in expensive Austin, the median home takes back its buyers around $570,600. Lone Star State residents may pursue conforming conventional mortgages to avoid mortgage insurance or purchase more diverse property types.
Conventional Loans in Texas
Conventional loans are loans that are not guaranteed by a government agency like the Federal Housing Association, Veterans Affairs, or the US Department of Agriculture. This lack of a safety net means they are more difficult to qualify for.
Also, compared to government-backed loans such as USDA loans, conventional loans have different down payment requirements and often a slightly higher interest rate. However, they do follow a set of rules established by Fannie Mae and Freddie Mac regarding borrower and lender requirements.
Texas Conventional Loan Requirements
A conventional mortgage in Texas comes with a number of requirements on credit score, income, down payments, and personal finances. It takes careful planning to navigate a conventional loan application in Texas, but we will cover the basics in the following section.
Down Payment
The minimum down payment requirement for a conventional home loan is 3%, but only if the borrower has excellent credit and a strong personal finance profile. Most people in Texas put down between 5% and 15% upfront. While there are variations depending on market competitiveness, the average Texas down payment is 12.20%, and homebuyers typically pay $18,780 upfront. Of course, the bigger the down payment, the better the loan-to-value ratio, which in turn affects interest rates and monthly mortgage insurance.
Private Mortgage Insurance
Unlike most government-backed loans, which require mortgage insurance throughout the life of the loan, conventional loans don’t require insurance as long as you have more than 20% equity in the property; in other words — if you have a down payment of at least 20%. If you pay 12.20% like the average Texan, you will need to pay private mortgage insurance until you pay off enough of your mortgage to own 20% of the house.
Interest Rates
Your interest rate will depend on your credit score, personal finances, loan-to-value ratio, term length, and loan amount (a non-conforming conventional loan will usually have higher rates). Conventional mortgages have fixed-rate and adjustable-rate options.
One benefit of an adjustable-rate mortgage is that it typically starts off lower. However, a fixed-rate mortgage can give you predictability and stability, especially in volatile market conditions. Rates for investment properties tend to be higher than for a primary residence, and each subsequent mortgage comes with higher rates.
Credit Score
The credit score is an important consideration for conventional loans in Texas. Although scores above the mid-700s are associated with more favorable rates, lenders typically look for a minimum credit score of 620. This score has a significant impact on the available interest rate as well as eligibility. Unfortunately, Texans have one of the lowest FICO scores in the US, which is currently at 695. Whatever your score, improve it before applying for a home loan, as it can save you a lot of money.
Texas Conventional Loan Limits
The Texas conforming loan limit for 2024 is the same for all counties and stands at $766,550, or 5.5% more than in 2023. The maximum loan limit is set on the national level depending on the market conditions, so some counties (although not in Texas) have higher conforming loan limits due to hefty home prices.
Conforming Loan Versus Non-Conforming Loan
Conventional loans in Texas are classified as either non-conforming or conforming. Conforming loans adhere to Federal Housing Finance Agency (FHFA) maximum loan amount limitations (or $766,550 in 2024).
Jumbo or non-conforming conventional loans surpass these limitations and are intended for properties with larger values. This loan type also has higher interest rates and more stringent requirements regarding cash reserves, income, debt, home appraisal, and credit scores.
Closing Costs
Texas buyers should budget for closing expenses, which can range from 1% to 5% of the loan amount and consist of property taxes, title insurance, and loan origination fees. These expenses may have a big effect on how affordable a Texas house purchase is overall. The average closing fee expense in Texas is $4,548 or 1.5% of the median home price.
Personal Finances
To determine a borrower’s ability to repay, lenders will review tax returns, bank statements, pay stubs, and calculate their debt-to-income ratio. The maximum debt-to-income ratio for most conforming loans is 43% or 45%, depending on the lender and your overall finances. Borrowers also have to be:
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at least four years away from their last bankruptcy
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at least four years away from their last short sale
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seven years away from their last foreclosure
Assistance programs available in Texas
If you want a conventional loan, you can still apply for some down payment and closing cost assistance programs. Our loan officers will help you connect to state-level and local conventional loan programs, and assist you in qualifying for them. Here are some of the main state-level programs:
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TDHC My Choice Texas Home
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Texas State Affordable Housing Corporation (TSAHC) programs
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The Homes for Texas Heroes program (available only for certain professions)
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Home Sweet Texas Home Loan Program
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Mortgage Credit Certificate (MCC)
To apply for these programs and save money on the down payment and closing fees, you must have a good credit score, and your house needs to follow certain standards. Some programs are available only for first-time homebuyers.
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Contact District Lending Today
Ready to embark on your Texas home-buying journey? District Lending is the partner to turn to when you need specialized conventional loan options. Our team of professionals is dedicated to assisting you at every turn, guaranteeing a seamless experience with affordable rates and a wide selection of loan alternatives.
We can help you realize your Texas homeownership goals, whether you’re investing or purchasing your first house. We also offer FHA, VA, USDA, and jumbo loans in Texas. And when the time is right, we can also provide refinance options. Contact usfor a free quote, a personalized, human approach, and get pre-approved quickly so you can start house hunting as soon as possible.
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