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What You Need to Know Before Buying a House in Texas

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Called the Lone Star State, Texas is known for its diverse landscapes, affordable cost of living, and friendly neighbors. It's a sought-after location for families and retirees due to its warm climate, no individual state income tax, and an abundance of employment opportunities.

So if you're asking yourself, "What do I need to buy a house in Texas?", then this article is just what you need. Whether you're a seasoned pro or a first-time home buyer, the list below will show you the essential requirements for purchasing a home in Texas.

Credit Score Requirements For Texas

Texas is a big and popular location to live in. That's why it's no surprise that many first-time homebuyers worry that their credit scores might be too low to qualify for a mortgage in Texas. However, the minimum credit score needed to buy a house in Texas varies from one lender to another, so it's important to do your research and shop with multiple lenders.

While a strong credit score can make it easier to secure financing, having a poor score doesn't necessarily disqualify you from obtaining a mortgage. Lenders view low scores as risky, but you might still be able to qualify by offering additional guarantees, such as a co-signer or a higher down payment.

The average credit score in Texas, according to Experian data, is 688. However, most lenders consider a score of 620 or higher to be good. Here are the minimum credit requirements for various types of mortgages:

  • Conventional Mortgage: Minimum credit score of 620.
  • FHA Mortgage: Minimum credit score of 580, but some lenders may allow a credit score as low as 500 if you put a 10% down payment.
  • USDA Mortgage: Minimum credit score of 640.
  • VA Mortgage: The U.S. Department of Veterans Affairs doesn't specify a minimum credit score, but most mortgage lenders require 620 or higher.

It's important to note that lenders consider factors beyond your credit score when evaluating your mortgage application. They'll also review your credit reports and recent credit history. The information they'll gather will help them gauge how likely you'll pay the money you'll owe and will also be used to set the terms for the loan.

Before applying for any mortgage loan, it's always best to check your credit report and score first. This way you'll have a better understanding of your financial situation, dispute inaccuracies on your report, and have enough time to build up your score if you think it's lacking.

Income Requirements

Although there are no fixed rules, having stable employment and consistent income is typically an essential requirement for homeownership. Most mortgage lenders will require proof of income and at least 24 months of consecutive employment to qualify for a home loan. They might also ask you to provide information on your recurring debts, bank statements, and even your rental history.

If you are self-employed, you will need to present your business and personal tax returns for the previous two years, with tax returns reflecting continuous income for the last 24 months. You will also need to provide your year-to-date profit and loss statement.

Moreover, certain mortgage loan programs have unique household income requirements. For example, with a USDA loan, your total household income should not exceed 115% of the median household income for your area.

Down Payment Requirement

Down payment is the initial amount you make towards the purchase price of a house. Most Texas mortgage lenders require a 20% down payment, which amounts to $59, 172.60 for an average home valued at $290,863.

Understandably, the down payment amount required can be expensive, especially for first-time buyers. Thankfully, there are ways to reduce your down payment, allowing you to get into a new home faster.

Government-backed loans such as VA loans allow for a 0% down payment on the purchase price of your home, given that you are eligible and the sales price of the home doesn't exceed its current appraised value. USDA loans also offer a 0% down payment but the property you purchase should be located in a USDA-designated rural area. FHA loans offer 3.5% down if your credit score is 580 or higher. And for first-time borrowers, Conventional loans allow a down payment as low as 3%.

Texas also offers several down payment assistance (DPA) programs. Eligible applicants may qualify for a grant or a second mortgage that will help cover closing costs or the down payment required. Some of the DPA programs available in Texas include:

  • My First Texas Home Program: This program is only available for first-time home buyers and veterans. It offers a 30-year term, low-interest mortgage of 5% of the loan amount. Your first mortgage should be from a lender approved by the Texas Homebuyer Program, and your credit score at least 620.
  • My Choice Texas Home: Available to both first-time and repeat home buyers with a credit score of 620 or higher, this loan program offers a first mortgage with the option to add down payment assistance of up to 5% as a 30-year, 0% interest second mortgage.
  • TSAHC Home Sweet Texas Home: TSAHC or Texas State Affordable Housing Corporation, offers eligible borrowers a deferred forgivable second loan through its Home Sweet Texas Home Loan Program. The borrower must have a credit score of at least 620. Moreover, household income limits apply as well as the home's purchase price.

Pre-Approval Letter

To purchase a home, you need to obtain a mortgage pre-approval letter first. This letter is from a lender telling you that they are willing to lend you a specific amount of money. Most Texas sellers require this letter as proof that you are a serious buyer and you have the financial means to make a home purchase.

But before making an offer, it is recommended that you gather pre-approval letters from multiple lenders so you can compare pre-approval amounts and interest rates. This will allow you to have the best possible terms for your home purchase.

To obtain a mortgage pre-approval letter, you must complete an online mortgage application and provide information about your financial situation. Here are some of the factors that lenders consider when determining your pre-approval amount:

  • Total Monthly Income: Most lenders would prefer that your monthly housing costs be less than 28% of your monthly income.
  • Recurring Debts: Lenders will also consider your current debts including credit cards, personal loans, and student loans to calculate your debt-to-income (DTI) ratio. Although there are lenders that would accept a DTI ratio of 43%, it is recommended to keep around 36%.
  • Cash Reserves: Texas mortgage lenders generally require borrowers to have sufficient cash reserves for the closing costs and down payment without depleting their entire savings. Most lenders expect borrowers to have enough funds to cover two months' worth of mortgage payments, including taxes and insurance.

what do I need to buy a house in texas

Determine How Much Home You Can Afford In Texas

Home buyers face fierce competition in the housing market, but planning can increase the chances of success. By knowing how much house you can afford, you will be better equipped to navigate the market and make informed decisions.

To prepare for the home-buying process, it's important to budget for all associated costs such as your desired down payment, anticipated closing costs, and your desired monthly mortgage payment.

It's also important to note that the costs of homeownership go beyond just mortgage payments. There are additional expenses that you need to factor into your budget to avoid unpleasant surprises later on.

Here are some of the significant expenses associated with owning a home in Texas:

  • Mortgage Insurance: Conventional loans often require private mortgage insurance (PMI) if you put in less than 20% down payment. PMI will automatically cancel when your mortgage balance reaches 78% of the home's original purchase price. With FHA loans, regardless of how much down payment you put in, you would have to pay for a mortgage insurance premium (MIP) for the whole term of the loan.
  • Property Tax: Texas might not have a state property tax, but the local government does. Property tax rates vary depending on the county you are in.
  • Homeowners Insurance: Homeowners insurance is mandatory for mortgaged homes. In Texas, the average cost of homeowners insurance is $1,967.

Know The Available Loan Programs In Texas

There are a lot of mortgage options available that will help you get into homeownership. It's important to understand these options so you'll know which one suits you best.

  • Conventional Loans: This loan option requires a 3% down payment for first-time buyers and 5% for repeat homebuyers. It is suitable for those who have some savings, steady income, and a credit score of 620 or above.
  • FHA Loans: FHA loan is a good choice for low- to moderate-income borrowers who don't meet the requirements for conventional loans. This option requires a 3.5% down payment.
  • VA Loans: This option doesn't require a down payment. However, it's only offered to active-duty military members, veterans, and their qualifying spouses.
  • USDA Loans: USDA loans offer 100% financing but are intended for purchasing properties in USDA-designated rural areas.
  • Jumbo Loans: Also referred to as non-conforming mortgages, jumbo loans are not guaranteed by Fannie Mae, Freddie Mac, or the FHA. As a result, guidelines for jumbo loans are typically more restrictive and require a larger down payment but also allow for larger purchases.

In addition, it is also crucial to learn about the various mortgage interest rates available when buying a house in Texas. You can choose between a fixed-rate mortgage or an adjustable-rate mortgage. A fixed rate is where the interest rate remains the same throughout the loan's life. While an adjustable-rate mortgage starts with a low initial rate that changes throughout the loan term depending on the current market.

Hire Ebenezer Mortgage Solutions Your Experienced Multi-State Mortgage Broker

A mortgage broker is a crucial partner in the home-buying process. At Ebenezer Mortgage Solutions, we help clients have a smoother home buying experience by guiding and assisting them from mortgage application up to the closing process.

With our access to numerous loan products from various lenders, we can provide you with the best loan options. It is our responsibility to identify your short- and long-term goals so that we can create an innovative mortgage strategy that fits your needs.

It is also the mortgage broker's role to navigate any situation, including handling the process and smoothing any bumps along the way. Whether you have credit issues, need a local real estate agent for house hunting, or have other unique needs, a good broker will have the knowledge and ability to obtain financing that suits your specific situation.

Inspections And Appraisals

To ensure that you're making a wise investment, it's important to have a home inspection and appraisal conducted before finalizing a home purchase. These evaluations provide insight into the property's value and condition and may provide an opportunity to renegotiate contract terms in case of unexpected findings.

Getting your Texas home inspected can offer you peace of mind. A licensed inspector is hired to thoroughly examine critical areas of the property including plumbing, heating and cooling systems, and other safety issues. Additionally, a seller's disclosure is mandatory in Texas. This is a statement where the seller outlines any known property concerns.

On the other hand, appraisals are typically required to determine a property's value. If you're obtaining a mortgage, your lender may request an appraisal to ensure the property is worth the loan amount they're going to lend you.
Having both a home appraisal and inspection performed can help you make an informed decision and protect your investment.

Close On Your New Home!

After your home inspections are completed and your financing is approved, you will be ready to close on your new home. Closing involves securing your mortgage and obtaining full ownership of the property.

Closing a home in Texas involves meeting the title company to complete the paperwork as well as paying the closing fees. During the closing date, you will spend about an hour reviewing and signing various legal documents. These documents include the final loan application, deed, promissory mortgage note, and the disclosure statements. It is important to take your time in verifying that all the information is correct before finalizing the loan and having the title transferred from the seller to you.

You will also be responsible for paying the closing costs related to your purchase. These costs often involves:

  • Title and escrow charges: These fees are charged by title companies for conducting the title search and completing the closure. Typically, both home buyers and sellers share this expense.
  • Lender fees: These are fees charged by the mortgage lender for preparing the loan. It may include application fee, origination fee, underwriting fee and any other loan-related expenses.
  • Prepaid costs: These are the ongoing costs associated with homeownership, such as homeowners insurance and property taxes. Some lenders may require borrowers to pay these costs in advance.
  • Other closing costs: These are miscellaneous expenditures that can vary by buyer, such as fees for real estate attorneys, pest inspections and natural catastrophe certifications.

In Texas, the average closing costs for buyers are about 2% to 6% of the purchase price. If the buyer has to pay 4% for closing costs, this can amount to $14,800 for a home which amounts to around $4,079 for a home valued at $370,000.

Need Help in Purchasing a Home in Texas?

To successfully buy your dream home, it's essential to have your finances in order and prepare well in advance before initiating the mortgage-application process. Creating a checklist of home-buying requirements can help you be fully prepared when it's time to make the purchase.

If you're ready to transition from renting to owning a home in Texas, Ebenezer Mortgage Solutions can assist you in getting the financing you need for your property. Call us at (813) 284 - 4027 so we can start working on getting your dream home.

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