How to Buy a House in Texas: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration. The average home value in Texas is $306,841, lower than the national average of $362,481. This difference can impact your budget and financing options when buying a home in Texas.

Understanding down payment assistance programs, mortgage types, and state-specific regulations and requirements can ensure a smooth journey toward homeownership in the Lone Star State. MoneyGeek compiled essential pointers to help you navigate the homebuying process in Texas, from saving for the down payment to finding the best financing option for your needs and credit history.

According to data from the U.S. Census Bureau, the homeowner vacancy rate in Texas in the second quarter of 2024 was 1.5%. The homeowner vacancy rate measures the percentage of vacant homes available for sale, which helps gauge the balance between housing supply and demand.

A stable vacancy rate — where homebuyers have some choice and flexibility in where they live — is around 2%. With Texas's rate at 1.5%, there is high housing demand for limited inventory. This situation can make it challenging for homebuyers to find available properties, potentially leading to higher competition and prices.

Before buying a house in Texas, you must closely examine your financial and credit history. A solid financial profile increases your chances of getting approved when applying for a mortgage.

Your credit score plays a significant role in determining the mortgage loans and interest rates you qualify for — the higher your score, the more likely you are to get a desirable rate. According to Experian, the average credit score in Texas is 695.

If you have bad credit (between 300 and 579 on the FICO scale), getting approved for a mortgage may be more difficult. Check the table below for your best mortgage type based on the minimum credit score requirements.

Source: Experian

Your debt-to-income (DTI) ratio helps lenders see how much of your monthly income goes to paying off debts. This allows them to evaluate the amount of mortgage debt you can take on. In Texas, the average mortgage debt is $230,940, according to Experian. This figure highlights the additional financial responsibility you may consider when taking on a mortgage.

Monthly debt payments included in your DTI are mortgage payments, credit card payments, auto loans, student loans and other debts. Use our DTI ratio calculator to see your front-end DTI, back-end DTI and total monthly debt payments. The front-end DTI represents the percentage of your income spent on housing costs, while the back-end DTI includes all debt payments.

Purchasing a home is a significant financial commitment, and it's easy to fall into the trap of buying a house that stretches your budget too thin. Consider using the 28% rule as a guideline to avoid this common mistake. This rule suggests you should not spend more than 28% of your monthly income on your mortgage payment. By adhering to this rule, you can help ensure that your housing costs remain manageable and do not overwhelm your finances.

According to the U.S. Bureau of Labor Statistics, the median annual income in Texas in April 2024 was $45,970. This translates to a gross monthly income of $3,831 before taxes. Applying the 28% rule, you should aim to spend no more than $1,073 on your monthly mortgage payment.

Use our mortgage calculator below for a more precise estimate tailored to your situation.

A down payment is an upfront payment made when buying a house, often 20% of the home's purchase price. This standard can be a considerable obstacle for many homebuyers. For example, the average home value in Texas is $306,841, which means a 20% down payment would be $61,368. For homes above the average value, such as $400,000, the 20% down payment would be $80,000.

Fortunately, saving up for a 20% down payment is not a requirement. Most mortgage types allow you to put less money down. For instance, VA loans don't require a down payment, and FHA loans only require 3.5% down.

Note that if you put down less than 20%, your lender may require you to take out private mortgage insurance. Use our PMI calculator to estimate your monthly private mortgage insurance (PMI) premium based on your credit score and down payment.

Several down payment assistance programs in Texas make homeownership possible for many people. These programs provide financial support to help cover the initial costs of buying a home, making homeownership more accessible for a broader range of individuals. Check out the table below for the available down payment assistance programs in Texas offered by the Texas State Affordable Housing Corporation (TSAHC).

Choosing the right location in Texas involves considering several factors. Average house prices can vary significantly across different cities and neighborhoods. Proximity to family, friends, work and school is another crucial aspect. Additionally, access to public transportation, parks, restaurants and shopping centers can significantly enhance your living experience.

The cost of living also affects your decision when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), Texas's cost of living index is 92, lower than the national average of 100. Here are some essential expenses to consider when choosing the right location:

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

Use the table below to see some cities in Texas and their average home values. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can expedite your house hunt in Texas. They provide the advice you need, extra hands to deal with paperwork and an expanded list of property options you won't have access to alone. They can also recommend other service providers like title companies and inspectors to help you buy your home in Texas.

When finding a real estate agent, do your due diligence and interview agents with experience in the neighborhoods you're interested in. Consider the following tips:

• 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

You can also use the license holder search tool from the Texas Real Estate Commission to find real estate agents in Texas.

The homebuying process involves finding the best mortgage you can afford. In Texas, you have various mortgage options such as conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You can also choose between 10-year, 15-year, 20-year or 30-year terms and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Selecting the best financing option can increase your chances of approval and save you money in the long run.

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. The annual percentage rate (APR) differs from the interest rate as it includes additional costs like fees, providing a clearer picture of the actual cost of borrowing.

As of December 2024, the APR for a 30-year fixed conforming loan in Texas is 6.41%, and the APR for a 30-year fixed rate FHA loan in Texas is 7.97%. Check the table below to see the current mortgage rates in Texas by mortgage type.

Getting pre-approved for a mortgage in Texas helps you understand your budget and demonstrates to sellers that you are a serious buyer. Lenders usually issue a mortgage pre-approval letter, which states the loan amount you are qualified for based on a thorough review of your financial situation. This letter is typically valid for 60 to 90 days, giving you a specific timeframe to find a home and finalize your loan.

To get pre-approved for a mortgage, you must submit several documents. These include:

• Proof of income
• Employment verification
• Credit history
• Bank statements
• Tax returns
• Identification
• Debt information

It's important to understand the differences between mortgage pre-approval and prequalification. Pre-approval involves a detailed review of your financial health, including a credit check and verification of your income and assets. Prequalification is a preliminary assessment based on self-reported information and does not involve a credit check or in-depth financial review.

Home inspections are highly recommended in the homebuying process to identify potential issues before finalizing the purchase. Inspectors will examine structural components, roofing, plumbing, electrical systems, and heating and cooling. The inspection report typically includes findings on the condition of these components and recommendations for repairs. This helps buyers understand the property's actual condition and anticipate necessary repairs or maintenance.

For example, an inspection might reveal major issues such as a damaged roof, outdated electrical wiring or a failing foundation. These issues can significantly affect the home's appraised value, potentially lowering it. This information could lead buyers to reconsider their offer or rescind altogether based on the inspection's results.

The Texas Real Estate Commission (TREC) regulates home inspections in Texas. Licensed home inspectors must follow the TREC's Real Estate Inspector Standards of Practice (SOPs) and provide clients with their findings in the mandatory inspection report form.

If you're looking for a home inspector in Texas, ensure they are licensed. Check what other clients have said, look at online reviews and ask for references to ensure you hire a reliable professional. You can also use the TREC's License Holder search tool to find licensed home inspectors in Texas.

Home appraisals determine a property's fair market value. This necessary step ensures buyers do not overpay and that lenders can confidently provide a mortgage. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost is $500.

A home appraisal differs from a home inspection in several ways. Although an appraisal assesses the value of a property, a home inspection evaluates its condition, identifying any potential issues that may need repair. Lenders require appraisals to ensure the property is worth the loan amount they are providing.

Closing is the final step of buying a house in Texas, where the final transfer of ownership occurs and you receive the keys to the property. Your lender must provide a closing disclosure document three days before the official closing. This document includes loan terms, projected monthly payments, fees and other closing costs. Plan a final walk-through of the property with your real estate agent near closing day to ensure it's still in the expected condition.

During closing day, you'll review and complete a lot of paperwork. Some of the key documents you need to sign include:

• Final loan application: Confirms all the details of your loan, including the interest rate and loan amount. It verifies your financial information and ensures everything is accurate before finalizing the loan.
• Deed transfer: Transfers property ownership from the seller to you. It is a legal requirement to officially become the home's new owner.
• Promissory mortgage note: Outlines your loan repayment terms, including the amount you owe, the interest rate and the repayment schedule. It is a legal promise to repay the loan under the specified terms.
• Homeowners insurance: Protecting your new home is essential. Texas home insurance covers potential damages to your home and provides peace of mind as you settle into your new property.

Closing costs are the fees and expenses you must pay when finalizing a mortgage. In Texas, the average closing costs are $5,259, according to the NAR. These costs cover various services required to complete the home purchase. Some of the fees included are:

• Appraisal fee: The cost of having a professional appraiser determine the property's value.
• Title search and insurance fee: Fees for verifying the property's title and securing insurance to protect against future title disputes.
• Escrow deposit: Funds held in a mortgage escrow account to cover future property taxes and insurance premiums.
• Prepaid costs: Advance payments for property taxes, homeowners insurance and mortgage interest.
• Other closing costs: Additional fees such as loan origination, recording and credit report fees.

If you are a first-time homebuyer, learning the different first-time homebuyer programs in Texas can also help you achieve homeownership faster.

Buying a house is a significant financial commitment that will last for years. To help you kickstart your homebuyer journey, we answered some frequently asked questions about buying a home in Texas.