Everything You Need to Know About HUD Loans in Texas

HUD loans in Texas, particularly FHA loans, offer favorable terms and low down payment options to make homeownership a reality for many buyers, especially low-income households.

Keep reading to understand what HUD loans are, explore your options, and learn how to qualify. 

What Are HUD Loans?

HUD loans refer to mortgage programs and initiatives managed by the United States Department of Housing and Urban Development (HUD), most commonly FHA-insured mortgages.

The Federal Housing Administration (FHA), a government agency within HUD, insures mortgage loans through approved private lenders to make homeownership possible for people who don’t meet the strict requirements of conventional financing.

FHA loans come with flexible qualifications, making them ideal for:

• First-time homebuyers
• Low-income individuals
• People with lower credit scores or past credit issues
• Borrowers with limited savings for a down payment

In addition to managing the FHA, the HUD supports diverse housing needs through community development grants, homebuying assistance programs, and rental assistance. 

The HUD aims to provide safe, affordable, and fair housing opportunities for all American homebuyers as well as strengthen communities nationwide.

Pro Tip: The FHA commonly insures mortgages on primary residences with 1 to 4 units. If you plan to generate income from your residential property, you can live in one room/unit and rent out the other rooms/units. (Remember, you must live in the property.) Separate multifamily loan programs are available for developers, investors, and nonprofits.

HUD Loan Options for Homebuyers

The agency oversees various programs, including:

FHA Loans

While the HUD offers many pathways to homeownership, FHA loans are the most common option for buyers.

These loans are a good match for first-time homebuyers, especially those who don’t meet stringent conventional loan standards.

Benefits:

• Low down payment: 3.5% for borrowers with 580+ credit scores
• Flexible credit: People with lower scores or limited credit history may still qualify.

Here are the most common FHA loans for those who want to buy their first home:

If you’re a repeat buyer, you may apply for an FHA loan again as long as you intend to live in the property as your primary residence, you don’t have an active FHA mortgage, and you meet eligibility requirements.

While FHA loans offer both fixed-rate and adjustable-rate options, fixed-rate loans are ideal for first-time homebuyers as they allow predictable, consistent payments.

HUD Section 184 Loan Program for Native Americans and Alaska Natives

Designed for Native American and Alaska Native households, tribes, and tribally designated housing entities, this loan program offers:

• As low as 2.25% down payment
• More lenient credit and income requirements

If you’re eligible, you may apply for the loan program whether you want to buy, refinance, or build your home.

HUD Homes in Texas

When a homeowner fails to pay back an FHA-insured loan, the HUD sells the foreclosed property to the public.

HUD’s goal is to recover losses rather than make a profit, which is why many HUD homes have lower prices than other properties on the market.

Visit the official HUD Home Store to explore available listings in Texas. 

Good Neighbor Next Door Program (GNND)

With this HUD-backed program, you may purchase an eligible HUD home in a designated revitalization neighborhood at 50% off the list price if you’re an eligible public servant:

• Teacher (pre-K through 12)
• Law enforcement officer
• Firefighter
• Emergency medical technician

You must live in the property for at least three years upon getting your home.

GNND opens the door to substantial savings if you’re a community servant who’s considering foreclosed properties.

Success Story: Turning a Modest Income Into Homeownership

In 2020, a 29-year-old Florida resident earning $17/hour bought a 3-bedroom, 2-bath property through an FHA loan, even with only a few thousand dollars in savings.

She handled the inspection and title fees, while the sellers paid for all closing costs and offered $5,000 in concessions.

Five years later, her home’s value almost doubled from $145,000 to $265,000, and she now rents it out to earn income while building home equity.

Key Takeaway: This story shows the possibility of buying your home despite moderate income or small savings. Be sure to do your research and weigh the pros and cons of your loan options. It’s best to work side by side with a trusted mortgage broker, like Texas United Mortgage, to streamline the homebuying process. 

HUD Loan Requirements

HUD loans have more lenient criteria compared to traditional home loans.

Take a look at these eligibility requirements to find out if you qualify:

• Credit Score: The FHA may accommodate lower credit scores (as low as 500), although credit score requirements vary by lender. Applicants with a 580 or higher credit score often qualify for a 3.5% down payment, while those with a 500 to 579 credit score may need at least 10% down (which is still lower than most conventional mortgage down payment requirements).
• Debt-to-Income Ratio: For FHA loans, most lenders prefer a DTI ratio under 43% of your income. However, some may consider higher DTI ratios if you have good credit or enough savings.
• Mortgage Insurance Premium (MIP): This insurance protects the lender in case you default on your loan. FHA requires a one-time upfront mortgage insurance premium (1.75% of your loan amount), although it’s usually added to the mortgage. You also have to pay an annual insurance, paid monthly, for 11 years if your starting loan-to-value is less than 90% and for the full loan term if your LTV is higher than 90%.
• Owner-Occupied: You must live in the financed property.
• Steady Employment: Additionally, lenders often want to verify your income. A steady job for two years helps prove that you’re capable of paying back the loan.

If you pair an FHA loan with Texas assistance programs (like TDHCA or TSAHC), these may have purchase price and income limits based on the area’s median income.

Keep in mind that HUD simply guarantees your loan. The final decision is still in the hands of your lender, so do your best to become a creditworthy borrower to earn their trust.

Where to Find Private Lenders for HUD Loans in Texas

If you want to apply for an FHA loan, use HUD’s official Lender List Search Tool to find FHA-approved lenders based on your city, county, or lender name.

Many local banks, credit unions, mortgage brokers, and online mortgage lenders in Texas offer FHA loans alongside conventional mortgages.

Always verify that your lender is FHA-approved using HUD’s search tool. It’s also best to compare loan estimates from multiple lenders to discover the most competitive rates and terms.

To make the homebuying process easier, our expert loan officers at Texas United Mortgage will shop multiple lenders, guide you through pre-approval, and help you navigate lender requirements.

Reach out to us today to start your application!

Next, discover 5 important things to know about FHA loans to make a well-informed decision.