The Ultimate Guide to Buying a House in Texas

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Buying a house in Texas? The Lone Star State touts one of the nation’s hottest real estate markets, giving homebuyers a lower cost of living, a warm climate, and plenty of employment opportunities. Whether you’re looking for a big-city lifestyle in an urban metropolis like Dallas, a great music scene like the one in Austin, or the simple life in the country, Texas has the land and cultural diversity to make your home-buying dreams come true.

Read on to learn the nine steps to buying a home in Texas, including requirements for closing the deal, and tips to consider, so you can stop dreaming and start packing.

Step 1: Assessing Your Finances

As with any major purchase, you need to establish a budget to buy a Texas home. When you know what you have to spend, you’ll learn how much house you can afford and what areas to consider. 

But buying a house isn’t just about setting a home price - there are other hidden costs and financial considerations. 

Here’s a quick summary of the financial requirements and payments you’ll need to consider when buying a home -- we’ll review each in detail below:

  • Credit score: score of 620 or higher.
  • Debt-to-income ratio: 35% or less.
  • Down payment: commonly ~20% of the home’s sales price, depending on the loan type.
  • Closing costs: 2%-5% of your loan, paid upfront. 
  • Property taxes: ~2-3% of the home’s value, typically paid monthly.
  • HOA fees: ~$200-$400/month depending on the community. 

Credit score

Your credit score directly impacts the terms of your mortgage loan. The higher your credit score, the more appealing you will be to a lender and the more favorable the interest rate they should offer.

Most personal credit score models are on a 300 to 850 scale, with 850 being the best score possible. In general, you’ll want a minimum credit score of 620 to qualify for a home loan. If you’re a veteran, you may be eligible for a VA loan with lower credit minimums. 

Local Orchard Austin agent Rachel Bennett recommends keeping tabs on your credit score using CreditWise, a free monitoring tool. You can also request a free copy of your credit report from annualcreditreport.com. This report will include your credit score, a summary of your outstanding debt, and your payment history. If you need help understanding what factors impact credit, refer to this free guide.

Debt-to-income ratio (DTI)

Your debt-to-income ratio, or DTI, helps lenders understand how much you can afford to pay for a mortgage each month, given your existing monthly debt payments. Generally, lenders are looking for a DTI below 35%.

To calculate your DTI, add up your monthly debt, including the cost of monthly payments on your new home, and divide by your gross monthly income (i.e., how much money you earn before taxes). 

If you’re in Texas, keep in mind that most online payment calculators do not account for Texas’s higher property taxes. - Rachel Bennett, Orchard Home Advisor

Down payment and private mortgage insurance

A down payment is the cash you pay upfront to your mortgage lender to buy a home. You may have heard that buyers should make a down payment of 20% of the house’s price. By putting down 20%, you show the lender that you’re a less risky borrower, which incentivizes the lender to offer you the most favorable interest rates. A larger down payment upfront also allows you to take on a smaller loan, keeping your monthly payments down. 

However, you can find several types of loans that allow you to buy with a smaller down payment. 

“You can buy a home with a down payment as little as 3.5% for a Federal Housing Administration, FHA, loan or a conventional loan,” says Bennett. “If you’re in a USDA-eligible area or using payment assistance, your down payment could be zero.”

If you cannot make a 20% down payment, the lender will require you to pay for private mortgage insurance. Private mortgage insurance is a policy that protects the lender in case the lender has to foreclose on your home. A monthly mortgage insurance premium can add $50-$500 per month to your mortgage payment, depending on the loan amount, down payment, and credit score. 

According to Cameron Phelps, a senior loan officer at Orchard Home Loans, mortgage insurance is a great tool to become a homeowner without draining your savings. 

“Mortgage insurance has become more and more affordable over the last decade while home prices have continued to skyrocket, which has led to more people making a smaller down payment even if they have the money for a 20% down payment,” says Phelps.

Texas also offers various programs for down payment assistance. For example, the Texas Department of Housing and Community Affairs (TDHCA) offers the My First Texas Home Program, which helps homebuyers meet funding requirements by providing a 0% interest second loan to cover the down payment and closing costs. 

The TDHCA program is one of several funded by FHA grants in Texas that offer down payment assistance. Similar initiatives, like the Home Star Program and the Homes for Texas Heroes Program, can make buying a house in Texas that much easier. 

Closing costs

Another crucial financial element of the home-buying process are the closing costs. These costs include settlement fees, lender charges, title and escrow fees, etc. Closing costs typically range from 2%-5% of the purchase price. The exact number can vary depending on the home’s cost and the specific fees and services associated with the home purchase. In a real estate transaction, certain closing costs usually fall on the buyer, so talk to your mortgage broker to know what to expect.

There are many ways you can prepare for this added home buying expense. Per NerdWallet, paying closing costs out-of-pocket as a one-time expense is the most cost-effective route. However, your lender may be able to fold them into your loan and include the cost in your monthly mortgage payments. Although this is a convenient option, you’ll end up paying more interest over the life of the loan for these costs.

Property taxes 

Keep in mind as you begin house-hunting that your mortgage payments are only one factor affecting your budget. You also need to consider the property taxes you will owe on the house each year as well.

Recent reports by SmartAsset reveal that Texas property taxes rank sixth-highest in the U.S., with an average property tax rate of 1.83%. Compare that to the current national average, which sits at a much lower 1.08%. In major cities, like Austin, expect to pay over 2% of your home’s valuation.

(On the flip side, Texas residents enjoy one of the lowest sales tax rates in the country and  no state income tax.)

Homeowner association fees

Homeowner association fees (HOA fees) are monthly payments by owners of a residential community to assist with community-wide maintenance and improvements. Fees are non-negotiable and vary widely depending on the amenities of the housing development.

In Texas, typical HOA fees can add anywhere from $200-$400 to your monthly payments.

Step 2: Finding a real estate agent

Now that you’ve assessed your finances, it’s time to find a real estate agent to start looking at homes. You will want to meet and discuss your unique needs, price range, and lifestyle with your agent so they can best guide your search. You also want to make sure they’re knowledgeable about your local market’s current real estate trends and familiar with neighborhoods that meet your criteria and budget. 

If you also have a home to sell, it’s helpful to have one brokerage to help you with that as well. This way, you will have fewer points of contact to manage. 

In researching an agent’s qualifications, look at how many years of experience they have, the number and price range of the homes they have sold, and the cities or neighborhoods in which they specialize. You can refer to our list of questions to ask before signing an agreement.

You can also ask for references or browse third-party review portals to see what past clients had to say. For example, Orchard has a Trustpilot page where customers can leave reviews. 

You also want to hire an agent who truly understands your area of interest and can help you navigate any area-specific nuisances, like city ordinances or yearly fees that may be part of joining an HOA or master-planned community. Suppose you have your heart set on buying land or farm property. In that case, you’ll also want a realtor who is savvy on Texas agriculture exemptions, homestead exemptions, and wildlife exemptions, which can save you thousands of dollars a year on property taxes. 

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Step 3: Setting a home buying timeline

Establishing a timeline to purchase your home will help you narrow your search and set limits for when you need to make a decision.

In general, how fast homes sell will affect your buying timeline, especially if you have a home to sell too. The available housing inventory is a key factor here. If fewer houses are available for sale, the ones on the market may move faster.

For example, if homes sell very quickly in the area where you hope to live, you should be ready to make an offer the same day or within a few days of seeing a home. If sales are more modest, you may have more time to shop around, and more leverage when making an offer. 

Here’s how fast homes sold in 2020 in the most popular Texas cities:

Texas market Average days on market in 2020
Austin 45
Dallas-Fort Worth 46
Houston 53
San Antonio 55

*Data based on single-family home sales in each market

Also, think about how long it’ll take to sell your existing home. You may end up having to find short-term housing if you sell too quickly, or risk missing out on a great home if yours hasn’t sold. Nowadays, there are services, like Move First, to help you get the timing right. 

Another important factor to consider are local school schedules, like when summers begin and end. Housing inventory typically is lower in Texas during winter but increases in April, as sellers move to capture the interest of individuals and families wanting to relocate in the summer. If you are buying a home in Texas during a low inventory season, you may have to be less picky about particulars during your house hunt.

If you’re interested in buying new construction, your timing will vary by builder and the type of home you want. Refer to our new construction guide to learn more about this unique process.

Step 4: Understanding your mortgage options

Your next step will be to get in touch with a mortgage company. Buying a house in Texas (or anywhere) is no small feat, and a good mortgage broker will walk you through the financing process from start to finish. Your mortgage broker will help you evaluate your debt-to-income ratio, provide information on interest rates and home loan types such as FHA loans and private subsidized loans, and help you get pre-approved for a mortgage loan.

Your mortgage broker also should outline what to expect for monthly mortgage payments so  you can budget accordingly. In general, your total housing costs shouldn’t exceed 30% of your monthly income. You’ll also want to determine whether a 15-year or a 30-year loan term is right for you. In most cases, you should plan on living in your home for at least two years to equalize the closing costs on the loan, which are typically between 2%-5% of the home’s price. 

Mortgage rates in Texas

According to Bankrate, Texas’s mortgage rates are very low right now, in line with current national averages. As of early January 2021, Texas mortgage rates averaged 2.34% for a 15-year mortgage and 2.89% for a 30-year mortgage. To see what type of rate you would be eligible for, we recommend reaching out to a mortgage provider. Some mortgage brokerages, like Orchard Home Loans, will even shop lenders for you to help you find the best rates.

Although it is currently a seller’s market, with housing inventory moving quickly in every part of the state, it’s still a great time to buy a house. Property values are increasing statewide, and homes in Texas are expected to increase in value by 6.5% in 2021.

Step 5: Choosing a neighborhood

When buying a house in Texas, finding the right neighborhood in your chosen city is just as important as the home’s layout or features. You want to consider your family, lifestyle, and work commute, to make sure the home suits everybody’s needs. 

Does your family prefer natural living, or plenty of entertainment opportunities? Texas boasts numerous master-planned communities that include features tailored to specific interests, from community gardens to kid-friendly pools and play areas. 

Whatever your preference, you can find a neighborhood that suits your taste and budget. If you need help discovering the right area, check out our neighborhood guides for Dallas, Houston, San Antonio, and Austin

If you have children, ask your real estate agent if they have any resources to share on local schools and community amenities. School rankings can vary significantly from city to city, and you’ll want to check parent reviews, average standardized test scores, and school rankings to ensure that your local schools will meet the needs of your family. 

Other factors to consider when shopping for the right neighborhood are low crime rates, supermarkets and nearby stores, and your daily commute if you work outside the home. Consider mapping your commute to work to determine factors like rush-hour traffic travel time and tollways.

Your agent can also help you review recent home sales in your preferred area. This will give you an idea of home value trends and a guideline for how much your home’s value might appreciate over time. Specific neighborhoods are booming in cities like Houston, Austin, and Dallas, which means you may have to pay a premium to live in one of the current hotspots. 

Step 6: Starting your home search

Once you’ve determined the neighborhood or cities of interest for your Texas home, it’s time to begin the house hunt! Viewing homes is the fun part of buying a house, and you can quickly get started by browsing homes online.

Make sure your home search tool has these key features, as they will help you find great listings: 

  • Displays all the listings available on the market.
  • Shows all the property details and has high-quality photos.
  • Has school information by listing to help you see assigned schools and their ratings.
  • Allows you to change the featured photo so you can immediately see the condition of the home area you care about the most.
  • Supports virtual tours so you can rule out houses and narrow down your options before making a trip.

If you’re looking for a place to find the latest listings, our search tool has all these features and more. We show all the available listings in Austin, Dallas-Fort Worth, San Antonio, and Houston. You can also take our Home Match quiz to see which listings meet your desired commute and must-have home features.

Keep in mind that the housing inventory in Texas is severely limited. According to the Texas Real Estate Research Center at Texas A&M University, the average days on market dropped to an all-time low of 44 days in late 2020. With the few homes available selling that quickly, it’s important to remember that no house is perfect, and make sure to prioritize your “must-haves” as you shop for your new residence.Simple cosmetic changes like paint and carpet are good areas to make concessions. 

Also, consider including room to grow in your home-buying plans. A house with an open floor concept or a flex space may serve your family well for many years to come. 

Step 7: Making an offer

Once you find a house you love, it’s time to make an offer. Homes in Texas sell faster than the national average, and you don’t want to wait too long before making an offer on a home you love. A skilled realtor can put your offer above all others by making it the most attractive to the seller. 

Tips on making your offer more competitive

It is not uncommon for homes in Texas to sell above list price with multiple offers on the table, and you will want to discuss with your real estate agent ways to increase favor with your sellers:

  • Consider including a personalized letter to the sellers on why this house is special to you.
  • In a highly competitive market, making an all-cash offer is another savvy strategy to ensure that your offer stands out above the rest. Consider using a tool such as Offer Boost to make a cash offer on your new house.
  • Remove home sale contingencies in your offer. Contingent offers are riskier for a seller and weaken your offer. 
  • If the home you are buying needs repairs, you can ask for a repair credit instead of having the seller make and pay for the repairs.

Is your Texas dream home already at the top of your budget? Consider offering negotiables that make the sale easier for the owner. For example, giving your seller leaseback time in the home to prepare for moving may make your offer more valuable to them than a full-price contract. Removing any contingencies for sale will also make your offer a strong contender.

“Many parts of Texas real estate contracts are negotiable. Before waiving contingencies or offering incentives to the buyer, talk to your agent to make sure you understand how this will impact you financially.” - Rachel Bennett, Orchard Home Advisor

After you and your agent agree on your terms, your agent will draft a purchase and sale agreement to submit to the seller. If the homeowner accepts your offer, they will sign the purchase and sale agreement, and the document becomes legally binding and part of the transaction paperwork. Don’t be surprised if the seller first makes a counter-offer, however. Negotiations often can go back and forth two or three times until both parties are comfortable with things like repairs, contingencies, and closing timelines. 

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Step 8: Conducting a home inspection

Once you’ve made a winning offer on the house and signed the purchase contract, you’ll kick off the option period and submit your earnest money deposit and option fee. Most buyers use this time (usually 7-10 days) to schedule a home inspection.

A home inspection ensures you have all the details on the property’s current condition, including the home’s foundation, structure, electrical, and plumbing. In the state of Texas, homeowners also are required to provide a Seller’s Disclosure Notice for a previously occupied single-family residence, which details issues concerning the home’s physical condition. Even if you have a disclosure, it’s essential to schedule an inspection for added protection.

Typically, your real estate agent can recommend a reliable home inspector. The home inspector will conduct a thorough inspection of the house and present you and your agent with a detailed report. They may also recommend secondary inspections from specialized companies, like roofing, HVAC, and foundation.

What are Texas-specific home inspections?

Because many parts of Texas have clay soil, you may consider having a foundation specialist assess the house and identify potential foundation concerns. 

If the home you are buying has a pool or a septic system, you will want to hire a certified inspector, as Texas soils are prone to shifting, which can cause issues for both pools and septic systems alike. 

Taking the time to address all of these issues during the option period will help prepare you to negotiate the final sale price and inform your decision on whether to purchase a home warranty. 

What inspections will your lender require?

In addition, some lenders will have specific inspection requirements, depending on the loan product. Your lender will require an appraisal and may ask for follow-up inspections, like termite testing and flood-plain evaluations.

Once all inspections are completed, you can choose to accept the home as-is, request that the seller update or fix the items, or negotiate on the price to offset the costs of any necessary repairs. After the house has passed inspection, the option period is over, and you will move towards closing on your new home.

Step 9: Closing on your new home

Closing on your new home is the last step in the home buying process. Working with your agent, you will negotiate the closing date with the seller, and it will be listed in the purchase agreement. 

Your title company, lender, and agent work together to close on the date listed in the contract. However, sometimes the lender or title company will need more time to finish all the paperwork, which can push your closing date by a few days. 

At least three days before closing, your mortgage lender will send you a closing disclosure, which lists the terms of your loan and summarizes your closing costs. The disclosure will also contain how much money you’ll need to bring to your closing day. 

Review this document carefully to ensure that the monthly mortgage payments and interest rate match your loan estimate and so you understand how and when closing costs need to be paid. Make sure you sign this disclosure as soon as possible. Texas law requires that you sign your closing disclosure three business days before your closing date.

The day before closing, you also will do a final walkthrough of the house. This is your last chance to test lights and electrical outlets, confirm that plumbing and appliances work, verify that any needed repairs were made, and know whether the house is move-in ready. If anything is not as it should be, bring it to your agent’s attention immediately. The good news is, once you get past this last hurdle, you’re almost at the finish line.

What happens on closing day?

The official process of closing on a house generally takes place at the office of the title company, and in Texas, you do not need to have an attorney present (which means you’ll save on attorney’s fees). Closing in Texas takes about an hour. 

Your title company should give you a list of what you’ll need, but generally, you do not want to forget: 

  • The financial statements required by your lender.
  • Any outstanding documents for the title company.
  • A government-issued photo ID. 
  • A cashier’s check or certified check made payable to the title company to cover any closing costs that have not been bundled in with your mortgage note. 

If you are legally married, the state of Texas requires that your spouse is present at closing as well (even if they are not on the loan). Texas is a community property state, which means that your spouse owns 50% of the house. 

Don’t be shocked at the amount of paperwork involved. Closing documents generally are 50-100 pages long, and although you may be tempted to sign quickly, these are binding legal agreements. Take the time to read through everything carefully, and ask your agent for clarification if anything is confusing or seems inaccurate. Once the ink is dry, you’re all set. You’ve successfully bought a home in Texas, and it’s time to celebrate!

Any other questions?

With so many factors to consider when buying a home in Texas, it can be tough to keep track of everything. But having an experienced agent and a modern, easy process can make it easier. 

Orchard helps you make a cash offer on a new home, then lists your existing home after you’re all moved out. We’re also local to Texas, currently serving customers in San Antonio, Dallas-Fort Worth, Austin, and Houston. Learn more about us here.

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