How to Buy a House in Texas: A Homebuyer’s Guide

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Edited byLilian Mironga
Contributions by4 experts
Edited byLilian Mironga
Contributions by4 experts

Updated: March 1, 2024

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The average price of a home in Texas is approximately $315,815. That's 17.7% higher than last year. Despite the increasing prices over the years, it is significantly lower than the national average of $357,810.

The increase may seem high, but Texas is still an affordable place to live in due to its low cost of living and lack of income taxing. Additionally, its moderate weather allows skipping extra features like tornado or snowstorm protection, making house construction much cheaper.

A thorough review of your property options, available mortgage programs, homebuying process and requirements can help set you up for a relatively painless and debtless investment. MoneyGeek compiled the essential pointers such as choosing the best location, preparing for your mortgage, conducting home inspections and more for Texan homebuyers.

Key Takeaways

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The average home price in Texas is around $315K, which is 17.7% more than last year.

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In order to take out a mortgage, homebuyers must meet certain requirements. These include having a minimum credit score, debt-to-income ratio and income level. Upfront down payments may also be required.

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To buy a home in Texas, you should find an ideal location, check mortgage options, prepare to meet lenders' requirements and close on the loan.

Choose an Ideal Location

Many factors come into play when determining the value of a real estate property. The location has the most significant effect on prices, but neighborhood culture, crime rate and available amenities are also important factors. The ideal location depends on your unique circumstances.

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WORK WITH A REAL ESTATE AGENT

Searching for your dream home and securing the deal is intimidating and difficult without proper guidance. A real estate agent can give you the advice you need, the extra hands to deal with paperwork, an expanded list of property options you won't have access to alone and more.

When finding an agent, MoneyGeek recommends a few tips to consider:

  • Find someone compatible with your needs and personality.
  • Verify the agent's credentials, training and licensure.
  • Ensure they have in-depth knowledge of the area.
  • Shop around for agents and compare their rates.
  • Get pre-approved for a mortgage ahead of time.

Besides dealing with the heavy workload, real estate agents can also be your rock during emotional and stressful times in the homebuying process. They keep you focused on your priorities when things seem chaotic.

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CALCULATE THE COST OF LIVING

The cost of living is a significant factor in choosing your new home. Expenses on groceries, transportation and housing will take a big portion of your income. So don't just choose the cheapest places to buy a house in Texas; consider the living expenses too.

Cities in Texas have widely different costs of living. For example, you may spend up to 17% more of your income on necessities in Austin than Brownsville.

Some of the essential expenses you must consider when choosing the right location include the following:

  • Food
  • Health care
  • Clothing
  • Utilities
  • Education
  • Transportation
  • Entertainment

If you want a more solid figure to work with, MoneyGeek's cost of living calculator is a handy tool for determining the average cost of living from state to state.

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CONSIDER AFFORDABLE NEIGHBORHOODS

Texas is one of the most affordable states in the U.S., with a cost-of-living index of 90.9 compared to the national average of 100. Texas ranks as the 12th cheapest state to live in. Usually, houses in metropolitan areas are more expensive than in suburban or nonmetropolitan locations, but in Texas, even metropolitan areas are affordable.

According to the Texas Housing Affordability Index (THAI) by the Texas Real Estate Research Center, the top five most affordable areas are Wichita Falls, Beaumont-Port Arthur, Midland, Odessa, San Angelo and Texarkana. These areas have a THAI ranging from 1.53 to 1.91, meaning the median family income exceeds the required income to purchase a median-priced home.

Calculate Mortgage Rates

When looking at mortgages in Texas, you must understand how different mortgage options work and what rate you can expect from them. The best mortgage option for you will depend on your profile and needs.

Ensure you consider the individual factors that will determine the level of mortgage you can qualify for, including your income, credit history and debt-to-income ratio. It also helps to compare lenders to find the best mortgage rates in the state.

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SEE YOUR MORTGAGE OPTIONS

Different loan programs are available for homebuyers in Texas, each carrying different rates, requirements, limitations and terms. For example, VA loans do not require a down payment, minimum credit score or private mortgage insurance (PMI), but they are only eligible for veterans and active service members.

Proper preparation before shopping around for lenders can make the process easier and faster. Please prepare your credit score, debt-to-income ratio, gross monthly income, employment history and other information. Improving your credit score months before you apply for a mortgage can significantly reduce interest rates.

The average interest rates in Texas for different mortgage programs are:

Note that APRs vary by lender and fluctuate over time.

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USE A MORTGAGE CALCULATOR

It makes sense to use a mortgage calculator to see how much you'll end up paying back for a mortgage. Calculating your mortgage also helps if you want to know how much money you would pay each month to meet your financial obligations on time and reduce the stress in your life.

Our mortgage calculator will show you how much money you can borrow and at what interest rate. You can also compare conventional and FHA mortgage rates to find the best deal for your situation.

After you get an estimate, you can compare different mortgage options based on several variables to find the best loan for you.

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KNOW YOUR QUALIFICATIONS

Your financial profile will affect the mortgage rates and terms you qualify for. Some of the factors mortgage lenders will consider are:

  • Credit score: A numerical value that indicates your creditworthiness based on your payment history, debt load and length of time you have had credit. The higher your score, the more likely you'll qualify for a reasonable rate.
  • Income: Your income will affect the size of the mortgage you can afford. Typically, lenders require that your annual income be greater than the amount of your proposed mortgage payment.
  • Debt-to-income ratio: DTI measures how much debt you carry in relation to how much money comes in each month. It includes all monthly debt payments such as car loans, student loans and credit card bills — but not rent or utilities. Your DTI must fall within certain guidelines determined by your lender for approval.
  • Down payment: The amount you put down indicates how much equity you have in a property before signing on the dotted line to buy it. Lenders prefer borrowers who have 20%, but the figure varies by loan type and lender.

Prepare Down Payment Requirements

The down payment amount is a big factor in determining the total cost of your loan. Generally, the more you can put down, the less you'll pay each month.

Again, it's not uncommon for a mortgage company to ask for a 20% down payment, though it varies from lender to lender and from property to property.

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DETERMINE DOWN PAYMENT REQUIREMENTS

On a conventional loan, lenders typically prefer that buyers have a 20% deposit. But there are low-down-payment mortgages where you can get a loan with as little as 3.5% or zero-down-payment mortgages where you don't have to put anything down, like VA and USDA home loans.

Usually, you'll need decent credit and income, but this is an attractive option to consider for people who can meet those requirements. Additionally, the larger your down payment, the lower your monthly payments will be.

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CALCULATE MORTGAGE INSURANCE

Private mortgage insurance is a requirement on most conventional home loans with less than 20% down. It protects the lender in case the borrower defaults on their loan. However, some mortgage options — like FHA loans — do not require mortgage insurance.

  • Conventional loans: PMI is required if the down payment is less than 20%. Rates vary based on a borrower's profile.
  • FHA loans: PMI is not required. But you will likely pay an upfront mortgage insurance premium (MIP) instead.
  • VA loans: No PMI required.
  • USDA loans: No PMI required. However, you may have to pay a guarantee fee.
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DOWN PAYMENT ASSISTANCE PROGRAMS

Down payment assistance programs in Texas can make buying a home possible for many people. Many government organizations and nonprofits offer programs to help first-time home buyers put together the money they need to buy a new house. These assistance programs come from:

  • Texas State Affordable Housing Corporation: The TSAHC is a nonprofit organization dedicated to reducing housing costs for the citizens of Texas. The Texas Legislature founded it as a way of helping to finance the creation and maintenance of affordable housing for low-income households. It has mortgage and down payment assistance programs.
  • The Texas Department of Housing and Community Affairs: The TDHCA is a state agency that provides low-income housing, community development and affordable housing programs. The state's homebuyer programs include closing costs and down payment assistance.

Get Pre-Approved for a Mortgage

When you want to know how much it costs to buy a home in Texas, it's best to get pre-approved for a mortgage beforehand. Some sellers will require this proof of your financial expertise before letting you see their property, so don't turn up empty-handed.

A pre-approval is different from a prequalification. The former indicates the amount your lender has agreed to lend you, whereas the latter is not binding. A prequalification only states that you qualify for a loan (which is the case for all consumers), but it doesn't commit the lender to give you the loan.

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GATHER NECESSARY DOCUMENTS

The documents you will be required to provide when applying for a mortgage loan vary depending on the type of loan you want. That's because different kinds of loans call for varying levels of risk to be assumed by the lender.

Lenders will generally require personal information like your name, address, employment status and length of time at your current residence. They will also ask for financial information about your income and assets.

Besides the basic information, you may have to submit supporting documents, including:

  • Driver's license
  • Social Security number
  • Current pay slips
  • Three years of tax returns with W-2s
  • Bank account statements
  • List of credit cards and debts

However, suppose you are self-employed or have unusual sources of income. In that case, lenders could ask you to provide financial documents that show your current year-to-date profit and loss statements and statements of unpaid accounts receivable.

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TIME YOUR PRE-APPROVAL

The pre-approval process is a critical step in your mortgage application. It's when you first get the green light for your loan. You can speed up the process by gathering the documents that your lender will need during this time. You can get pre-approved anywhere between one to two weeks after applying.

Once you get pre-approved, your lender will usually give you a letter stating how much they think you can borrow. This letter is suitable for anywhere from 30 to 60 days. Use this time to determine whether any factors would increase your costs or lead to a denied loan.

If something is going on in your life that could affect the amount you can borrow or make the lender concerned about whether you'll be able to repay the loan, the pre-approval period is the perfect time to address it. Don't wait after your mortgage has been approved and it's too late.

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RECEIVE PRE-APPROVAL LETTER

A pre-approval letter is a document that verifies how much money you can borrow to buy a house in Texas. The letter means that a lender has reviewed your application and determined their willingness to lend to you based on factors like income, credit score, assets and debt.

You may get several pre-approval letters to compare lender offers, but note that the validity varies. You should make up your mind before one expires to take advantage of a good opportunity.

Since most pre-approval letters are valid for 30 to 60 days, you can use this time to address any factors that can guarantee your mortgage approval.

Conduct a Home Inspection

Home inspections are one of the most critical steps in buying a house. An inspector will look at the entire house — top to bottom, inside and out —to tell you about any problems that need to be fixed before you buy.

If there's a problem with crucial parts of the house, you could end up paying for repairs or even losing your down payment and having to walk away from the deal.

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CONTACT A LICENSED INSPECTOR

When looking for an inspector, ensure they're licensed by the state — and research your preferred company. Find out what other clients have said, check online reviews and ask for references.

A home inspector will walk through the house with you and look for anything that could be unsafe or cause damage. A standard home inspection usually has a written report about the condition of a home's:

  • Roof
  • Exterior walls
  • Windows and doors
  • Plumbing
  • Heating system
  • Electrical system

The last thing you want is to move in and then discover that the apartment has significant issues that could have been prevented if only you had it checked by a licensed professional beforehand.

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FOLLOW TEXAS-SPECIFIC INSPECTIONS

Texas is home to some of the most beautiful and varied properties in the U.S. With so many different kinds of structures throughout the state, no wonder there are strict requirements for real estate inspections.

To ensure that Texas real estate inspectors provide a consistent service level, the Texas Real Estate Commission (TREC) sets standards of practice (SOPs). These standards ensure that the inspection process meets certain requirements.

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GO THROUGH APPRAISAL

A home appraisal is a professional opinion of your home's worth conducted by a licensed appraiser. An appraisal can help determine whether or not buyers are getting a good deal. It also prevents disagreements between buyers and sellers about the sale price.

The process of having an appraisal done on your home is relatively simple. An appraiser will visit your home, assess its condition and ask questions about its value. They will then make a written estimate of the value based on their findings and add any personal notes that they deem necessary. It can take about an hour or two.

Close Your Mortgage Loan

Once you've selected your dream home and chosen to buy it, your next step is to close on the mortgage loan. It's a big decision, so you should be fully prepared before closing your mortgage loan. There are also costs that you have to be aware of.

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SIGN ALL DOCUMENTS

Once you've filled out the loan application and offered up some collateral, you'll be asked to sign some paperwork. Generally, the documents are designed to protect the lender if something goes wrong with the loan or if you default. These documents include the following:

  • A promissory note is a legally binding contract between you and the lender that states how much money you will borrow, when you will pay it back (with interest) and what happens if you don't. It also stipulates how much interest you will pay over the life of the loan.
  • A security agreement is a legal document that states that you will use your property as collateral for repayment of the loan. If no collateral is involved in the loan, for example, an unsecured personal loan, this document does not need to be signed.
  • A deed of trust is another legal document that protects against default by allowing the lender to take possession of your property instead of paying off the loan. If no collateral is involved in this type of loan, this document does not need to be signed.

Ensure you carefully peruse the documents before signing, so you can avoid trouble in the future.

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PAY CLOSING COSTS

Closing costs are fees a buyer pays in addition to the purchase price of a home. They can include, but are not limited to:

  • Appraisal fee: This is the expense of hiring a professional to determine the value of your home.
  • Credit report fee: The cost of obtaining your credit history from one or more credit reporting agencies (Equifax, Experian and TransUnion).
  • Escrow fee (if you choose to use one): Your lender may require you to open an account with them where they deposit funds from your monthly mortgage payment. That's until such a time that they need access to those funds for property maintenance or repair costs (such as if something breaks).
  • Flood certification fee, if necessary: Used by a lender to confirm that there aren't any flood insurance requirements associated with your property. If there are no such requirements, the lender will charge no fee. However, if there is any flood risk, you must obtain a flood certification before closing can proceed.

This list is incomplete, but it gives you an idea of how many fees you should brace yourself for.

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COMPLETE YOUR HOME PURCHASE

Buying a home is a lifelong investment. It's worth the time and effort to be as prepared as possible before you take the plunge, so you can enjoy your new home and save money along the way.

Preparation includes:

  • Choosing an ideal location
  • Knowing your mortgage options and getting pre-approved
  • Sorting out your documents
  • Having your home inspected and following through with the financial obligations that come with closing

Depending on your situation, it is also wise to have a separate savings account that goes exclusively toward your mortgage. Then, move some of that money into that account every time you get paid until you have enough for your monthly payments.

Texas Homebuying Details

Although there are specific steps you should take beforehand, the process will vary based on your state of residence. Before diving into the process of buying your first home, it's wise to do thorough research on the state of Texas.

1

The Homes for Texas Heroes Program is for anyone working in a profession that helps people daily, such as teachers, firefighters, police officers and nurses. If you belong to this group, this program provides you with a mortgage loan and funding for your down payment.

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Texas has no income taxes, meaning that the average Texas resident enjoys a higher take-home pay than residents of other states.

Frequently Asked Questions About Buying a Home in Texas

Buying a home in Texas is a big investment. Indeed, you'll have a few questions in your mind. MoneyGeek answered the most frequently asked questions about how to buy a house in Texas to help you take your first step toward homeownership.

What are the most important questions to ask when buying a house in Texas?
Is buying a house in Texas a good idea?
Is it wise to buy a house in Texas in 2023?
How much income do I need to buy a house in Texas?
How much is property tax in Texas?
Which Texas city is the cheapest to buy a home?

Experts' Insight about Buying a Home in Texas

  1. What are the key factors to consider when buying a house in Texas?
  2. What is the minimum credit score required for purchasing a house in Texas?
  3. What common mistakes do home buyers make when trying to purchase a property in Texas, and how can they avoid these pitfalls?
  4. Are there any programs available to help first-time home buyers in Texas?
Joel West
Joel WestMortgage Loan Originator at Adelante Wholesale Mortgage
Raul Hernandez
Raul HernandezWholesale Mortgage Broker at Competitive Home Lending
Job Hammond
Job HammondAssociate Professor of Real Estate & Finance at Austin Community College
Dr. Steven Brown
Dr. Steven BrownProgram Coordinator and Faculty Cedar Valley at Dallas College
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