Had a client call me yesterday. Been saving up for two years to buy his first house in Houston. Credit score sitting at 618. Bank told him no without even looking at his income or down payment. Guy makes $75,000 a year and had $40,000 saved up. Didn't matter.
His neighbor got approved the same week with a 640 score. Same bank, similar income, less money down. Twenty-two point difference in credit scores. That's all it took.
Welcome to the world of Texas home loans, where your three-digit credit score matters more than how much money you actually have in the bank.
Here's what you really need to know about credit scores and buying a house in Texas.
What Credit Score Do I Need for a Home Loan in Texas
Every lender has different standards, but most Texas mortgage brokers will tell you the same basic ranges. Doesn't mean they're written in stone, but they're pretty close to reality.
580-620 gets you in the door for FHA loans. That's the government-backed program designed for first-time buyers and people with less-than-perfect credit. Minimum down payment is 3.5%, but you'll pay mortgage insurance forever unless you refinance later.
620-640 opens up more conventional loan options. Still not great rates, but you've got choices. Some lenders will work with you at 620, others want to see 640 before they'll even pull your file.
640-680 puts you in decent territory. Not the best rates, but you're not getting penalized too hard for past credit mistakes. Most mainstream lenders will approve you if your income and debt ratios work out.
680-740 is where rates start getting competitive. You're looking at maybe a quarter point difference between this range and perfect credit. That quarter point costs real money over thirty years.
740 and up gets you the best rates available. Doesn't matter if you have 750 or 850 - lenders treat anything above 740 as excellent credit for mortgage purposes.
FHA Loans: The Texas First-Timer's Friend
FHA loans dominate the Texas market for buyers with credit scores under 640. Program's been around since the 1930s, designed specifically for people who can't qualify for conventional mortgages.
Minimum credit score is technically 500, but good luck finding a lender who'll approve that. Most Texas lenders want to see at least 580, and many prefer 600 or higher. Even then, you'll need a 10% down payment if your score is between 500-579.
Get your score up to 580 and the down payment drops to 3.5%. That's the sweet spot where FHA loans make sense for most Texas buyers. Combine that with seller concessions and down payment assistance programs, and you might buy a house with very little out of pocket.
Mortgage insurance is the catch. You'll pay an upfront fee of 1.75% of the loan amount, plus annual premiums between 0.45% and 1.05% of your loan balance. On a $300,000 loan, that's $1,350 to $3,150 per year in insurance costs.
FHA loans in Texas have county-specific loan limits. Harris County (Houston) maxes out at $498,257 for 2024. Travis County (Austin) is the same. Rural counties might be as low as $472,030. Buy above these limits and you'll need conventional financing.
Conventional Loans: Where Credit Scores Really Matter
Conventional loans are what most Texas homebuyers end up with if their credit scores are decent. These are the loans that Fannie Mae and Freddie Mac buy from lenders, so they've got strict guidelines.
620 is the absolute minimum for most conventional loans, but don't expect great terms. You'll pay higher rates, need more down payment, and face stricter income requirements. Some lenders won't even bother at 620 - they want 640 minimum.
Put down less than 20% and you'll pay private mortgage insurance (PMI). Unlike FHA insurance that sticks around forever, PMI goes away once you reach 20% equity. Could save you thousands over the life of the loan.
Higher credit scores unlock better terms fast. Jump from 620 to 680 and your interest rate might drop half a point. On a $300,000 loan, that's about $85 less per month. Over thirty years, that's $30,600 in savings.
Conventional loans also offer more flexibility. Want to buy a second home or investment property? Credit score requirements jump to 640-660 minimum, but it's possible. FHA loans are owner-occupied only.
VA Loans: The Best Deal in Texas (If You Qualify)
Military veterans get the best mortgage deal available. VA loans require no down payment, no mortgage insurance, and typically offer the lowest interest rates. But credit score requirements vary by lender.
Technically, the VA doesn't set a minimum credit score. They guarantee the loan, but individual lenders decide who they'll approve. Most Texas VA lenders want to see at least 580, many prefer 620 or higher.
Some specialized VA lenders will go down to 500 credit scores, but they're rare and usually charge higher rates. If your score is below 600, expect extra scrutiny on income, employment history, and debt ratios.
VA loans have funding fees instead of mortgage insurance. First-time users with no down payment pay 2.3% of the loan amount upfront. Subsequent uses cost 3.6%. Veterans with service-connected disabilities get the fee waived completely.
No loan limits on VA loans in Texas. Want to buy a million-dollar house with zero down? As long as your income supports it and the house appraises, VA will guarantee the loan. Try doing that with FHA or conventional financing.
USDA Rural Loans: The Hidden Gem
USDA loans work in rural and suburban Texas areas, which covers more territory than you'd think. Parts of San Antonio, Austin, and Houston suburbs still qualify. Zero down payment required, and credit score requirements are flexible.
Most USDA lenders want 640 minimum, but the program officially allows scores as low as 580. Manual underwriting kicks in below 640, meaning a human reviews your file instead of just running it through automated systems.
Income limits apply based on area median income. Generally, you can't make more than 115% of the area's median income. For a family of four in most Texas counties, that's around $90,000-$100,000 annually.
USDA loans include an upfront guarantee fee of 1% and annual fees of 0.35%. Cheaper than FHA insurance and goes away when you refinance or pay off the loan. No prepayment penalties either.
The catch is location restrictions. Properties must be in USDA-eligible areas, which exclude most major cities. Check the USDA eligibility map before you start house hunting.
Texas-Specific Programs and Assistance
Texas offers several first-time buyer programs that can help with credit score requirements and down payments. These programs often have more flexible credit standards than traditional loans.
My First Texas Home combines FHA, VA, USDA, or conventional loans with down payment assistance up to 5% of the purchase price. Credit score requirements match the underlying loan type, but they'll work with scores as low as 580.
Texas Bootstrap Loan Program offers zero-interest second mortgages to help with down payments and closing costs. Available in rural areas and small towns. Credit requirements are flexible, but you need steady income and reasonable debt ratios.
Local housing authorities in Dallas, Houston, San Antonio, and Austin offer their own programs. Credit score requirements vary, but most want to see at least 580-620. Down payment assistance ranges from grants to low-interest loans.
Habitat for Humanity operates in most Texas cities. They don't use traditional credit scores - instead, they look at payment history, ability to pay, and willingness to partner with them on construction. Different model entirely.
What Hurts Your Credit Score for Mortgages
Mortgage lenders don't just look at your credit score number. They dig into the details of your credit report, and some things hurt more than others when you're buying a house in Texas.
Late mortgage or rent payments kill your chances fast. Even one 30-day late payment on a mortgage in the past year can disqualify you with some lenders. Late rent payments don't show up on credit reports unless they go to collections, but many Texas lenders verify rental history directly with landlords.
Collections and charge-offs raise red flags, especially recent ones. Medical collections under $500 often get ignored, but unpaid credit cards or loan charge-offs need explanations. Lenders want to see these resolved or in payment plans before closing.
High credit utilization ratios hurt your score and signal risk to lenders. Keep credit card balances below 30% of limits, preferably under 10%. Someone with an 680 credit score and maxed-out cards looks riskier than someone with 650 credit and low balances.
Bankruptcy and foreclosure create waiting periods regardless of your credit score recovery. Chapter 7 bankruptcy requires 2-4 year waiting periods depending on loan type. Foreclosures need 3-7 year waiting periods. Short sales typically require 2-4 years.
New credit inquiries and accounts can temporarily lower your scores and signal financial stress to lenders. Avoid opening new credit cards or loans while shopping for a mortgage. Even a small score drop can bump you into a higher rate category.
Improving Your Credit Score for a Texas Home Loan
If your credit score needs work, don't wait to start fixing it. Credit repair takes time, and every point increase can save you money on your mortgage.
Pay down credit card balances first. This has the fastest impact on your score. Target cards with the highest utilization ratios - getting a maxed-out card below 30% helps more than paying down a card that's already low.
Don't close old credit cards even if you're not using them. Length of credit history matters for your score, and closing accounts reduces your available credit. Keep old cards active with small purchases you pay off monthly.
Pay all bills on time for at least six months before applying for a mortgage. Recent late payments hurt worse than old ones. Set up automatic payments if you struggle with due dates.
Check your credit reports for errors and dispute them. About 20% of credit reports have mistakes that could affect your mortgage approval. Focus on errors that involve payment history, account balances, or accounts that aren't yours.
Consider credit repair companies if you've got complicated issues like identity theft or multiple collection accounts. They can't do anything you can't do yourself, but they know the process and can speed things up.
Rate Shopping Without Hurting Your Credit
Multiple mortgage applications can ding your credit score, but the credit scoring system accounts for rate shopping. All mortgage inquiries within a 14-45 day window count as a single inquiry for scoring purposes.
Don't spread your mortgage shopping over months. Pick a two-week window and hit multiple lenders hard. Get rate quotes from banks, credit unions, mortgage brokers, and online lenders. Each one pulls credit, but they all count as one inquiry.
Get pre-approved, not just pre-qualified. Pre-qualification is just an estimate based on information you provide. Pre-approval means the lender has verified your income, assets, and credit. Much stronger position for making offers in Texas's competitive market.
Consider mortgage brokers who can shop multiple lenders with one credit pull. Good brokers have relationships with 20-50 lenders and can find programs you wouldn't know about. Bad brokers just push you toward whoever pays them the highest commission.
Credit unions often have the most flexible credit score requirements and best rates for members. Many Texas credit unions offer membership to anyone who lives or works in their area. Join before you need the loan.
The Reality Check
Here's the truth about credit scores and home loans in Texas - they matter, but they're not everything. I've seen people with 750 credit scores get denied because their income was shaky. I've seen people with 600 scores get approved because everything else was solid.
Lenders look at the whole picture: credit score, income, employment history, debt ratios, down payment, and assets. A strong application with a lower credit score often beats a weak application with higher credit.
Don't get obsessed with hitting some magic credit score number. Get the best score you can, but focus on the other factors too. Save money for down payment. Pay down debts. Build employment history. Document your income properly.
Most importantly, don't wait for perfect credit to start shopping. Market conditions change fast in Texas, and waiting six months to improve your score might cost you more in rising home prices than you'd save in better rates.
The house you can afford today with a 640 credit score might cost $50,000 more by the time you get your score to 720. Sometimes it's better to buy now and refinance later when your credit improves.
Texas home loans aren't rocket science, but credit scores definitely matter. Know where you stand, understand your options, and don't let perfect be the enemy of good enough. The best time to buy a house is when you're financially ready, not when your credit score hits some arbitrary target.