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Buying a Home in Texas 🏠 | How to Buy a House in Texas + First Time Buyer Programs

Last Updated on: 25th May 2024, 03:38 am

Whether you’re drawn to the bustling streets of Dallas or the serene backdrops of the Hill Country, the Lone Star State is filled with diverse home-buying opportunities. Venturing into the world of real estate and purchasing your first home is one of life’s most monumental steps.

Of course, buying a house in Texas is equally exciting and daunting. Before even starting the search for your dream home, you’ll need to explore mortgage loans, make sure you can afford a mortgage payment, consider hidden costs of homeownership in your budget, and more.

Here’s a step-by-step guide on how to buy a house in Texas geared toward first-time buyers plus tips and advice to demystify the process.

How to Buy a House in Texas: 5 Steps to Buying a House in Texas

The home buying process in Texas isn’t as overwhelming as it may seem at first. Try not to feel overwhelmed; focus on completing each step toward your ultimate goal of homeownership.

Step #1. Determine What You Can Afford to Pay

The first step in the process of buying a house in Texas is determining how much house you can afford. A common rule of thumb is using the 28/36 rule which uses your gross monthly income. This is your pre-tax earnings.

  • 28%: monthly housing expenses
  • 36%: total monthly debt payments

Your total monthly debt payment is called your back-end debt-to-income ratio. It’s used by many mortgage lenders to determine if you qualify for a mortgage loan. It includes your housing expenses, student loan payments, credit card payments, car loans, personal loans, and other debt payments.

With the 28/36 rule, you can estimate a monthly payment you can afford. Remember that this considers not just the purchase price but your entire PITI payment: Principal, Interest, Taxes, and Insurance. This is known as the “front-end ratio” by mortgage lenders.

To determine an affordable loan amount, you will need to estimate property taxes in the area, homeowners’ insurance premiums, and mortgage interest rates. The type of mortgage you get and your down payment can also affect your monthly mortgage payment. An FHA loan, for example, requires paying an upfront mortgage insurance premium (MIP) and an annual MIP of 0.15% to 0.75% of the loan amount, depending on your down payment amount.

How Much Does it Cost to Buy a House in Texas?

Do your research to understand the local real estate market where you plan to buy a home. Below are median home prices and property tax rates for the largest cities in Texas. This can help you estimate the down payment you will need to make sure your payment is affordable.

In many markets, you can find a range of townhomes and condos for sale with a lower median price. A real estate agent can also help you explore affordable suburbs near Austin or Dallas, for example, to stay within your budget.

Cost of Buying a Home in Texas

  Median Home Price Property Tax Rate
Texas $385,000 1.66%
Arlington $325,000 2.62%
Austin $550,000 2.21%
Corpus Christi $260,000 2.27%
Dallas $450,000 2.72%
El Paso $240,000 2.96%
Fort Worth $334,000 2.77%
Houston $339,000 2.43%
Lubbock $161,000 2.25%
Plano $512,000 2.18%
San Antonio $269,000 2.68%

What Is Your Down Payment Amount?

Once you know how much you can afford to pay, you can estimate the down payment you will need.

Nationwide, the average down payment is 14.4% or $34,248. First-time home buyers put down an average of 6%, while repeat buyers put down 17% on average. Texas home buyers put down 12.1% or $20,188 on average.

Here are minimum down payments by loan type:

  • Conventional loans: 3% to 5%
  • FHA loans: 3.5% (with a credit score of 580 or higher)
  • VA loans: 0%
  • USDA loans: 0%
  • Adjustable-rate mortgages (ARMs): 5%
  • Jumbo loans: 10%

Private Mortgage Insurance & Other Hidden Costs

Buying a house in Texas comes with many hidden costs you should factor into your budget. This includes closing costs and hidden costs of homeownership you may overlook if you have only rented.

  • Closing costs: On average, closing costs are 3% to 6% of your total loan amount. This includes home appraisal fees, home inspection fees, title and escrow charges, discount points to lower your interest rate, recording fees, loan origination fees, other lender fees, and more.
  • Property taxes: Texas has one of the country’s highest property tax rates. The median property tax bill in Texas is $2,275 or 1.66%. Property taxes in Travis County, Collin County, and Fort Bend County are the highest in the state with a median bill of more than $6,000.
  • Mortgage insurance: If you put down less than 20% on a conventional loan, you will need to pay a monthly cost for private mortgage insurance (PMI), which ranges from 0.22% to 2.25% of the loan amount per year. Your credit score, mortgage type and term, and down payment determine the cost of PMI. With government-backed loans, mortgage insurance works differently. An FHA loan has an upfront mortgage insurance premium plus an annual MIP of 0.15% to 0.75% paid monthly. A USDA loan has something similar: a guarantee fee with a 1% upfront fee and an annual fee of 0.35% of the loan balance paid monthly. VA loans have funding fees but no mortgage insurance.
  • Homeowners’ insurance: Texas also has higher-than-average home insurance rates. The average policy is $2,960 per year.
  • Flood insurance: If you are buying property in Texas in a high-risk flood area, you will be required to buy flood insurance. Flood insurance in Texas is $800 per year on average. Consider getting a policy even if it isn’t required. According to the Texas Department of Insurance, 40% of National Flood Insurance Program flood claims occur outside of high-risk flood zones. About 80% of Hurricane Harvey victims did not have flood insurance or coverage for damage.
  • HOA or condo fees: HOA fees for single-family homes are usually lower than condo fees, which cover more expansive common areas and amenities. The average HOA fee is $215 per month in Austin and $195 in Houston. San Antonio and El Paso have average HOA fees under $100, the lowest in the U.S. In Dallas, you’ll pay an average of $325. Nationwide, the average monthly HOA fee is $290.
  • Yard maintenance: Buying a house in Texas with a lawn? Budget for lawn care and maintenance. Full-service lawn care may cost $100 to $300 per month for a smaller yard no larger than a half-acre. If you do your own lawn maintenance, be prepared for the cost of a lawn mower and other tools, plus upkeep.
  • Home repairs and maintenance: A survey found the average homeowner spends $3,000 per year on home maintenance or 0.5% to 1% of the home’s value. How much you should budget depends on the age and condition of the home and how much effort you put into preventative maintenance. Try to set aside money each month to build a $10,000 emergency fund or set a goal based on the estimated lifespan of your roof, HVAC system, and major appliances.

Step #2. Get Pre-Approved for a Mortgage

Now you’re ready to take one of the first real steps to buying a house in Texas: mortgage pre-approval. Getting pre-approved with full underwriting means your offer will be as strong as possible, and you’ll know what you’re approved to borrow.

This process involves submitting documentation that shows you meet the qualifications to buy a house in Texas.

  • Proof of income and employment, such as pay stubs and W-2 statements or self-employment documentation like personal tax returns and profit and loss statements
  • Employer contact information for the past two years
  • History of address for the past two years
  • Proof of reserve funds, such as bank statements
  • Certain documents may be requested, such as bankruptcy paperwork or a child support agreement

Mortgage lenders will also check your credit score and pull your credit report from credit reporting agencies.

You are not committed to a mortgage lender at this point. You can get pre-approved by multiple lenders too. Take the time to explore the best mortgage loan program to fit your circumstances.

At the end of this process, the mortgage lender will issue a pre-approval letter that can be submitted with a purchase offer.

Basic Requirements to Buy a House in Texas

What do you need to buy a house in Texas? You will need to meet these basic minimum requirements to qualify for a loan.

  • Minimum credit score of 620 with most programs. An FHA mortgage allows credit scores as low as 500 with larger down payments. You will need a credit score of at least 740 to qualify for the best mortgage rates.
  • Minimum down payment of 0% to 3.5%. USDA and VA mortgages allow 0% down.
  • Debt-to-income ratio of 41% to 43%. Conventional mortgages generally require a DTI ratio of 36% or lower, but up to 43% is allowed with adequate reserves, a larger down payment, or a high credit score. FHA mortgages allow up to 43%.
  • Adequate income. There are no income requirements to qualify for a home loan, but you must meet the DTI ratio guidelines. Many forms of income can be used to qualify for a loan, including employment, rental income, disability, and retirement income.
  • Employment record. Most lenders want to see proof of steady employment for two years prior to your application. Be prepared to explain any change in employment or job title.
  • Source of down payment. If you receive money as a gift for your down payment, you will likely need to submit a gift letter stating the amount, the relationship, and that the money does not need to be repaid.
  • Reserve funds. You will need to show adequate reserves to cover closing costs and other expenses associated with buying a home.
  • Rental history. Some lenders request proof of on-time rental payments for the past year, especially if you have limited credit history.

Popular Mortgage Loan Programs

Ready to start applying? Here’s an overview of the most popular loan programs for Texas home buyers.

  • Conventional Loans: Offered by private lenders and not backed by the government, this low-interest mortgage typically requires a higher credit score and down payment. Conventional loans can usually give the lowest mortgage payments and interest rates for buyers who can put down at least 20%.
  • FHA Loans: FHA mortgages are government-backed loans with looser standards than private loans. An FHA mortgage is a good choice for a first-time home buyer in Texas with a lower minimum credit score and smaller down payment required.
  • VA Loans: Exclusive to veterans, active-duty service members, and eligible spouses, a VA home loan is the best mortgage program if you qualify. You’ll get a competitive interest rate, no down payment requirement, and no PMI with just a modest funding fee instead.
  • USDA Loans: Designed for rural and semi-rural buyers, the USDA mortgage program is one of the best programs available if you’re buying property within a designated rural area. No down payment is required, but there are other qualifications like a cap on the purchase price.

Down Payment Assistance Programs for Texas First Time Home Buyers

As a Texas first time home buyer, you can qualify for down payment assistance to put homeownership within reach. Note that household income limits apply for most programs. You may need to work with an approved mortgage company, have a minimum credit score, attend a first-time home buyer course, and/or match a portion of the down payment assistance. There may be a cap on the purchase price of the home.

There are two statewide popular programs for Texas home buyers:

  • Texas State Affordable Housing Corporation (TSAHC) – Fixed-rate mortgages for first-time and low- to moderate-income buyers, mortgage credit certificates (MCCs), and up to 5% down payment assistance as a deferred forgivable second loan.
  • Texas Homebuyer Program from the Texas Department of Housing and Community Affairs (TDHCA) – My First Texas Home program with a low-interest loan, up to 5% down payment assistance, and a mortgage credit certificate. Previous homeowners can qualify for the My Choice Texas Home program without the MCC..

Many counties and cities also offer first-time home buyer grants and assistance. For example, Austin Neighborhood Housing and Community Development offers a no-interest forgivable grant of up to $15,000 when you buy a home in Austin.

Step #3. Go House Hunting with a Real Estate Agent

Now you’re ready for the most exciting part of the home buying process: finding the home of your dreams! It’s recommended that you hire a local real estate agent to represent you. Licensed real estate agents offer advice when making a purchase offer, assist with negotiations, and guide you through the process. A local real estate agent will also be able to help you find an area and home that checks the must-have boxes.

Real estate attorneys aren’t required in Texas, but you may find it helpful to consult with an attorney, particularly if the transaction is complex or involves an estate sale or FSBO.

Thinking about buying in the Austin area? Check out these guides to narrow down your options and find the perfect neighborhood.

Step #4. Submit an Offer

When you find THE home, and you’re ready to make an offer, your real estate agent will help you make the strongest offer. An agent can make sure you’re prepared with knowledge about the market, whether you should expect competition and other insights. You will need to make an earnest money deposit of 1% to 3% of the purchase price with your offer. This money is deposited into an escrow account and held by the escrow company until the transaction closes.

After submitting an offer, the home seller can accept it, make a counteroffer, or reject it completely. There may be some back-and-forth negotiation, especially if the home needs repairs or you are asking for seller assistance. Once the offer is accepted, you are officially under contract.

Step #5. Close on Your New House

Once you’re under contract, you’ll go through the closing process. The closing date is usually 30 to 45 days after an offer is accepted. During this time, you will need to complete your mortgage application to finalize your loan, get homeowners insurance, complete the home appraisal and home inspection, and meet any contingencies in the agreement.

When both the buyer and seller have met their obligations, the mortgage is finalized, and the title search is complete, you will be ready to close. After signing a stack of closing documents, you will get the keys to your new home!

Preparing to embark on the Texas home buying process? If you’re relocating to or from the Austin metro area, Unicorn Moving & Storage is ready to help you with a seamless, stress-free moving experience and convenient storage options. Contact our award-winning Austin movers today at (512) 339-9922 to get started with a free moving estimate.

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