How to Buy a House in Texas With Bad Credit in 2025?

5 mins read Feb 13, 2025
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Edited By

Sharanya Kumar

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Editor
Edited By

Sharanya Kumar

Editor, Houzeo
About Sharanya Kumar is a detail-oriented editor with a passion to help buyers and borrowers navigate the market. With a keen understanding of market trends and financing options, she aims to make complex real estate topics accessible. Find Sharanya Here linkedin
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21% of mortgage applications in the US were rejected in 2024. The biggest reason? Bad credit scores! But here’s the good news: even with a less-than-perfect credit score, there are ways to own a home in the Lone Star State.

In Texas, specialized lenders and tailored programs help you secure loans despite bad credit. So, why let your credit score stand in the way of homeownership?

👉 Texas Homes for Sale: Browse listings and find your dream home today!

Can You Get a Mortgage With Bad Credit in Texas?

Yes, you can get a mortgage with bad credit in Texas!

A credit score below 580 is considered a poor score. It reflects a history of high debt and missed payments. However, government-backed mortgages have lenient criteria. Texas also offers specialized programs to help bad-credit buyers achieve homeownership.

5 Steps to Buy a House With Bad Credit in Texas

16% of Americans have a poor credit score. If you fall into this category, here’s how you can still buy your dream home:

Step 1: Review Your Credit Score

Before you buy a house in Texas, check your credit report for errors and negative marks that could affect your credit score. If you find mistakes on your credit report, you can dispute them directly with the credit bureau. 

Step 2: Look for Mortgage Options With Bad Credit

Not all loans are available for bad credit in Texas. However, some options can help you buying a home with bad credit. Here’s a list of loans and their minimum requirements:

  • Conventional Loans: The minimum credit score required for conventional loans is 620 for Fannie Mae and 660 for Freddie Mac. However, a 3% down payment is mandatory.
  • FHA Loans: With FHA loans, you can buy a house with a credit score as low as 500 with a 10% down payment. If your score is 580 or above, you can put 3.5% down. However, you can only use FHA loans to purchase a primary residence.
  • VA Loans: VA loans are ideal for active-duty military and their spouses in Texas. While VA loans have no strict credit score requirement, most lenders prefer a minimum score of 620.
  • USDA Loans: The US Department of Agriculture offers USDA loans to encourage homeownership in rural areas like Texas Hill Country and Foard County. While the loans don’t have a minimum credit score, lenders prefer a score of 620 or above.

Step 3: Consider Subprime Lenders 

Subprime lenders, like Lone Star Financing, offer mortgages tailored for people with bad credit in Texas. They evaluate factors such as your employment history, income, and ability to pay down, rather than relying solely on credit scores.

These lenders also provide flexible loan terms and accept a higher debt-to-income ratio, often 50% or more for subprime mortgages. However, DTI requirements can vary by lender and loan type, which makes it easier for you to secure financing.

Step 4: Save for a Larger Down Payment 

For traditional mortgages in Texas, the minimum down payment typically ranges from 3% to 20%. However, if you have a bad credit score, a minimum of 10% is usually required.

You can make a larger down payment to improve your chances of securing a loan. Lenders view this as a sign of financial responsibility.

Step 5: Get Pre-Approved

For first-time home buyers in Texas, a mortgage preapproval is important, especially for those with bad credit scores. It informs you about your mortgage interest rate and monthly payments, and helps you manage your finances better.

How to Get Texas Loans With Bad Credit?

It can be challenging to get a home loans for bad credit in Texas. But it is possible if you have the right approach. Here’s what to do:

  • Pay Off Existing Debt: Before you buy a house in Texas with bad credit, you should pay back the money you already owe. Texas lenders often consider a manageable debt-to-income ratio below 36% as a sign of financial stability.
  • Budget Wisely: Factor the cost of living in Texas into your home-buying budget. This includes utilities, insurance, property taxes, and transportation costs.
  • Get a Co-Signed Mortgage: Look for a co-signer with a strong credit score to strengthen your loan application. This person will be responsible for paying back the co-signed mortgage if you default on payments.
  • Explore Texas-Specific Programs: Texas offers programs through the Texas State Affordable Housing Corporation to assist buyers with low credit scores. They provide down payment assistance and mortgage credit certificates, reducing upfront costs. 
  • Understand the Mortgage Application Process: You must be well-versed with Texas’ mortgage requirements, including state disclosures and lender criteria. Prepare documents like income proof and credit explanations to strengthen your application with Texas lenders.

Can I Get a Mortgage With Bad Credit?

Yes! You can get a mortgage with bad credit in Texas. There are various options available for buyers in this situation. FHA loans need a minimum credit score of 500 with a 10% down payment, while VA loans for veterans have no strict credit score requirements.

Apart from that, lenders also assess more than just your credit score; they also consider your income, savings, and overall financial situation. So, don’t wait! Make your dream of homeownership in Texas come true today!

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Frequently Asked Questions

Can I get a mortgage with bad credit in Texas?

Yes. It's possible to get a loan with bad credit in Texas. You can avail of programs through the Texas State Affordable Housing Corporation, or opt for government-backed loans that accept low credit scores.

What are the best loan options in Texas for buyers with bad credit score?

FHA loans are most popular for buyers with bad credit in Texas. You can also consider USDA loans for rural areas, and VA loans for veterans.

How much down payment is required to buy a house with bad credit in Texas?

In Texas, FHA loans require a down payment of 10% if your credit score is below 500. If your score is 580 or higher, you may qualify for 3.5% down.

How can I improve my chances of buying a home in Texas with bad credit?

There are some steps to buy a house with bad credit in Texas, like make a large down payment, reduce your debt-to-income ratio, and correct errors on your credit report.