Tips for Getting Approved for a Conventional Home Loan in Texas

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Buying a home is part of the American dream, and homeownership has many benefits. If you're looking to buy a home with a conventional loan in Texas, it's key to understand the mortgage approval process and prepare yourself to get qualified. Follow these tips to boost your chances of getting approved for a conventional home loan.

What are Conventional Home Loans?

Conventional home loans are mortgages that conform to lending standards set by Fannie Mae and Freddie Mac. They typically require a minimum down payment of 3-20% of the purchase price and have more flexible qualifying guidelines than government-backed FHA and VA loans. Conventional loans are popular in Texas for their relative ease of approval compared to jumbo or non-conforming loans.

Minimum Credit Score Requirements

Your credit score is one of the first things lenders look at when reviewing a mortgage application. The minimum credit score for conventional loan approval is usually around 620, but it varies depending on factors like your debt-to-income ratio and down payment amount. Borrowers with higher scores in the mid-700s typically qualify for better interest rates.

Checking your credit reports for errors and maintaining on-time payments can help improve your score in the months leading up to your home purchase. This gives you the best shot at approval and favorable loan terms.

Keeping Your Debt-to-Income Ratio Low

Your debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income. Conventional loans typically require a DTI of 43% or less. The lower your ratio, the better your chances of approval. DTI requirements are stricter for borrowers with lower credit scores.

Reducing existing debts through payment plans or balance transfers can decrease your DTI. Limiting new credit applications also helps keep your ratio low leading up to your home loan application.

Clean Credit History Matters

Lenders will review your credit history to identify past delinquencies, bankruptcies or foreclosures. These negative marks can make approval difficult, so it's best to avoid them. If you've had past credit troubles, maintaining consistent on-time payments helps demonstrate you're back on track.

Waiting for negative items to fall off your reports after the seven-year reporting period expires can also help. Avoid new credit missteps as you prepare to apply for a mortgage.

Down Payment Funds

Conventional loans require a minimum down payment of 3% of the purchase price. But putting down 20% helps you avoid costly private mortgage insurance (PMI).

Saving for your down payment early allows you to make a larger payment upfront and keep monthly costs lower. Ask your lender about down payment assistance programs that can help first-time homebuyers.

Know the Loan Limits

The conforming loan limit in most of Texas is $510,400 for a single-family home in 2023. Limits are higher in certain high-cost areas like Austin and Dallas. Jumbo loans have higher limits but stricter approval criteria. Staying under the conforming limit boosts approval chances.

Preparing Your Home Loan Application

Getting approved starts with thorough preparation well in advance of applying. Here are some tips:

  • Review credit reports and boost your credit score
  • Pay down debts to reduce your DTI
  • Save up funds for your down payment and closing costs
  • Maintain steady employment and income sources
  • Gather bank statements, W2s, and other needed paperwork
  • Shop lenders and get pre-approved
  • Ask questions to clarify loan requirements

Finding the Best Lender

Researching lenders and comparing mortgage offers is vital. Look for low-interest rates and fees and excellent customer service. Getting pre-approved provides more bargaining power when making an offer. Flagstone Mortgage has been Houston's most trusted mortgage broker for decades and has the experience to help you decide the best path toward home ownership.

With proper planning and preparation, you can feel confident about your approval chances for a conventional home loan in Texas. Pay attention to credit, debt, and down payment funds and find a lender willing to help you achieve your dreams of homeownership.

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