Texas First Time Home Buyer Guide – 2024

Even with higher interest rates, Texas first time home buyer rates continue to soar. First-time homebuyer grants in Texas can be a game-changer for those looking to buy their first home.

Like the rest of the country, the housing market in Texas has experienced a roller-coaster ride in 2024 because of the inflation and rising mortgage rates. But with the population in Texas continuing to climb (the state added the highest number of people over the past 10 years), all signs point to purchasing a new home in the Lone Star State being a good investment.

Texas Homeownership continues to rise, with about 70% of the state’s residents owning the home they live in. Relatively low housing costs in some parts of the state and an enormous variation in types of communities available should let Texas remain an attractive option for those looking to relocate.

Whatever their situation, purchasing a home anywhere, including in Texas, is a complicated process filled with often-confusing jargon and terms — and enough numbers to make your head spin. But we have the information Texas homebuyers need to make informed decisions about their next — or their first-ever — home purchase.

Texas First Time Home Buyer Options

Understanding the terminology related to mortgages is pretty much a full-time job. While there’s not enough space on the internet to explain everything, there are a few terms that every potential homebuyer should know about home loans, commonly called mortgages.

The select few who can pay cash for their home can jump ahead a section or two, but for most people, buying a house means getting a mortgage. These Texas first time home loans fall into two broad camps — conventional and government-backed.

How to Apply for First-Time Home Buyer Grant in Texas

Applying for a first-time homebuyer grant in Texas can be a significant step toward achieving your dream of homeownership.

These down-payment home buyer grants are designed to assist first-time buyers with financial assistance, making it easier to navigate the competitive real estate market.

If you’re ready to start the mortgage process, here’s a guide on how to apply for a down-payment grant in Texas.

Determine Your Eligibility: Before applying, make sure you meet the eligibility criteria for the grant programs. Typically, you should be a first-time homebuyer, which means you haven’t owned a home in the past three years. Each grant program may have specific requirements, so read the guidelines carefully.

Research Grant Programs: Texas offers several grant programs to first-time homebuyers. Some of the most popular options include the Texas State Affordable Housing Corporation (TSAHC) programs, My First Texas Home program, and the Texas Department of Housing and Community Affairs (TDHCA) programs. Research these Texas home buyer programs to find the one that best suits your needs and financial situation.

Attend Homebuyer Education: Many grant programs require participants to attend a homebuyer education course. These courses cover essential topics like budgeting, understanding mortgages, and the homebuying process. It’s a valuable step that equips you with knowledge for informed decisions.

Find a Texas Mortgage Lender: Partner with a mortgage lender who is experienced in working with first-time homebuyers and is familiar with the grant programs you’re interested in. They can help you navigate the application process and provide insights into grant options that align with your financial situation.

Organize Your Documents: You’ll need to gather essential documents such as income verification, tax returns, bank statements, and credit reports. These documents will be needed when applying for both the mortgage and the grant.

Submit Your Loan Application: Work with your lender to complete the grant application, ensuring that you provide accurate and complete information. Double-check that you meet all the grant requirements.

Get a Pre-Approval: The approval process may take some time, so be patient. Once approved, you’ll receive confirmation and instructions on how to proceed.

By following these steps and staying informed about the available programs, you can turn your dream of homeownership into a reality.

Texas Down Payment Grant Resources: 

San Antonio Down-Payment Assistance

Houston Home Buyer Help

Fortworth Home Buyer Assist Program

Austin Home Buyer Resource

Dallas Down-Payment Assistance Program

Galveston Home Buying Program

Texas Boot-Strap Loan Program

What Are the Income Thresholds for Down Payment Assistance in Texas?

Initial homebuyers can also seek a Mortgage Credit Certificate to enhance potential savings. The income limitations fluctuate according to the county within Texas, with increased thresholds applicable to specific regions. As a general guideline, the combined gross household income should typically not exceed $97,000. Nevertheless, certain counties may have more generous limits. Texas first time home buyers should discuss their eligibility with a lender that specializes in down-payment grants. 

What are the Minimum Credit Score Requirements for Down Payment Assistance in Texas?

According to TRB Bank, to qualify for down payment assistance, two essential prerequisites must be met: a minimum credit score of 620 and an income that aligns with the first time home buyer program’s stipulations.

Conventional

• Conventional home loans in Texas are privately funded and lack federal agency backing or guarantees.

• They often feature lower interest rates and typically necessitate down payments ranging from 5% to 20%.

• While the specific credit score requirements can vary by lender, it’s advisable for buyers to aim for a minimum score of 640 for conventional loans. Those with excellent credit scores may secure more favorable mortgage rates.

Government

• On the other hand, government loans, like FHA, VA, and USDA mortgages, are provided by private lenders but are insured or guaranteed by government agencies.
• Eligibility criteria vary depending on the agency, and they impose income and purchase price limitations.
• These loans usually entail lower down payments, sometimes as little as 3.5%, contingent on the borrower’s credit score.
• Government home financing often come with higher interest rates compared to conventional mortgages.
• Borrowers with lower credit scores are eligible for government loans, though those with scores below 580 generally must provide more substantial down payments.
• The 2023 FHA loan amounts increased as Congress pass the new bill.

Repayment options

The default way to purchase a home is to get a 30-year mortgage at one single, fixed interest rate. But that’s definitely not the only way, and there may be some reasons why alternative mortgage types are right for you.

ARM: An adjustable-rate mortgage (ARM) is a home loan featuring a variable interest rate that fluctuates over time. Typically, this type of financing involves an initial fixed-rate period, which spans a predetermined number of years, often around five or ten years. ARM loans are particularly attractive to individuals planning to sell their homes before the interest rate adjustment occurs. These mortgages are available with diverse total term options, yet the 10-, 15-, and 30-year adjustable rate mortgages remain the most prevalent choices.

5/1 ARM: In this type of 30-year mortgage, a buyer pays a fixed interest rate for the initial five years. After that period, the interest rate is subject to annual changes based on an index to which the rate is tied. That means the homeowner’s payment will probably go up each year based on the interest rate, though it also could go down depending on broader economic conditions.

15-year: This fixed-rate mortgage is identical to a 30-year mortgage except that it takes half the time to pay off. But that comes with a trade-off, as the payment is about twice what it would be with a longer total loan term. For many buyers, the long-term interest savings is well worth it, but this depends on the total amount being borrowed.

Other terms to know

Here’s a look at a few other common home-buying terms Texas consumers should know before diving in.

Mortgage insurance: While a substantial down payment of 20% is often not required by many lenders, buyers who opt not to make a down payment or provide less than 20% will generally need to pay for private mortgage insurance. This expense continues until their loan-to-home value ratio aligns with that of a 20% down payment.

Equity: This concept pertains to the potential cash value obtained if the property were to be sold. It’s contingent on both the outstanding mortgage balance and the property’s current value. Therefore, buyers have two means of boosting their equity — reducing their mortgage balance and enhancing the property’s worth. Initiating the home purchase with a more substantial down payment is usually preferable in the long run, enabling buyers to commence with a foundation of equity.

Closing costs: These represent charges disbursed by both the buyer and seller upon concluding a real estate deal. These are one-time expenditures that fluctuate by location. They are commensurate with the property’s value, and in Texas, it’s customary for buyers to cover closing costs ranging from 2% to 5% of the purchase price. This encompasses fees remitted to the lender, real estate agent, title company, inspector, and various other parties involved in the transaction.

Housing Market in Texas

Texas has grown in population more quickly than any other state over the past decade, adding nearly 4 million residents since 2010. That equates to a growth rate of nearly 15%, which is the third-fastest in the country, according to data from the U.S. Census Bureau.

Top 10 states by numeric growth, 2010-2020

All that population growth has led to a housing boom in Texas, with the median home value rising by nearly one-quarter over just the past five years, according to the most recent data from Zillow.

Median Texas home value by year*

* Monthly median recorded in October each year

In addition to rising home values, most housing markets in major metro areas have heated up considerably in Texas over just the past couple of years. For example, two years ago, the median number of days a house would remain on the market in the Austin area before a pending sale was reported was 31; today, that’s more like a week. A major exception to that is in El Paso, where the time on market has risen slightly.

Percentage change in median days to pending sale by metro area, 2018-2020

The rising home values in metro areas across the state and declining length of time homes sit on the market before they are sold is being driven by rapidly increasing home values in cities large and small across the state. However, the Dallas-Fort Worth metro area is the biggest beneficiary of this change, as 19 of the 25 Texas communities with the largest increase in median home value are in the DFW area.

Top 25 Texas cities by percentage change in median home value, 2016-2020

Resources for Texas Homebuyers

Several programs are available for Texas residents and those considering moving to the state, including grants and low-cost loans that can help ease the burden of a new home purchase.

Down payment assistance: Those considering purchasing their first home in one of the many large to medium-sized cities in Texas may be able to benefit from grants for first-time buyers. Be sure to check out what’s available in your city. The city of Abilene provides grants up to $5,000 in down payment assistance depending on income and family size, while the city of Austin offers up to $40,000 in down payment and closing cost assistance.

Texas State Affordable Housing Corp.: This state agency provides homebuyer assistance like down payment grants, mortgages, and second liens to eligible homeowners and buyers across the state. Non-first-time buyers are eligible for most of the programs.

Texas Hero Home Buying Program This was established by the Texas Legislature as a non-profit organization, we aim to assist Texans in realizing their homeownership dreams. Our Homes for Texas Heroes Program provides teachers, police officers, firefighters, EMS personnel, corrections officers, and veterans with home loans and down payment support.

FHA: FHA-supported loans are widely favored, especially by first-time homebuyers lacking substantial down payments. They serve as a primary financing avenue for moderate- to low-income individuals aiming to acquire a home. These loans are extended by private lenders, with federal agency backing that imposes a borrowing cap for property purchases. Throughout most of Texas, this cap is set at $331,760 for single-family homes, although it elevates to $404,800 within the Austin and Dallas-Fort Worth metropolitan regions. Be sure to consult the limit in the county you’re considering before deciding to pursue FHA financing.

USDA: The USDA Rural Development Single Family Housing Direct Loan Program provides loans for homes in rural areas and other small communities with eligibility limits that depend on household income and size. Here’s a look at the limits to be considered a low-income, four-person family in metro areas in Texas for the purpose of direct USDA loans:

• Abilene: $51,850
• Amarillo: $57,300
• Austin-Round Rock: $78,100
• Beaumont-Port Arthur: $54,000
• Brownsville-Harlingen: $47,100
• College Station-Bryan: $54,800
• Corpus Christi: $53,300
• Dallas-Fort Worth-Arlington: $68,950
• El Paso: $47,100
• Houston-The Woodlands-Sugar Land: $65,450
• Killeen-Temple: $51,100
• Laredo: $47,100
• Longview: $50,650
• Lubbock: $53,700
• McAllen-Edinburg-Mission: $47,100
• Midland: $59,350
• Odessa: $59,100
• San Angelo: $56,000
• San Antonio-New Braunfels: $57,600
• Sherman-Denison: $58,250
• Texarkana: $50,650
• Tyler: $56,300
• Victoria: $55,450
• Waco: $52,550
• Wichita Falls: $51,600

VA: Former military service members may qualify for loans backed by the Department of Veterans Affairs, with guaranteed maximum amounts. These limits are typically contingent on the cost of living and property size, varying by county in most states. In Texas, the maximum limit for single-family homes in all counties stands at $548,250.

Takeaway on 1st Time Home Buying in Texas

Buying a new home is a huge financial and personal commitment, but doing your due diligence, you can make sure that your next Texas home purchase is not only a good investment but a good start to the next chapter of your life. The RefiGuide is excited to connect you with local Texas mortgage lenders to meet you home financing needs.

References

• Texas A&M University Real Estate Center, Texas Housing Insight. (2020)
• Zillow, Housing Data, Zillow Home Value Index by State and City, Median Days to Pending. (2020)
• U.S. Department of Agriculture, Rural Development Single Family Housing Direct Loan Program, Adjusted Income Limits. (2020)

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