How to Buy a House in Texas: 8 Things You Should Know

Real estate values in Texas are on the rise. The affordability of living, high employment rates, and no income tax make it an excellent place for those looking to relocate their families or purchase property!

The real estate market down here has been booming recently because our climate is much better than other parts of America. There are tons more reasons why investing in homes here could be beneficial. Take advantage while you still have time before prices get too high.

Buying a property in Texas can be exciting yet overwhelming. Your financial health, the housing market, and the local economy in Texas can impact the home you purchase and the price. Not everyone knows how to buy a house in Texas because there are essential steps to follow. Here are vital things to know before buying a home in Texas.

8 Steps to Buying a House in Texas

Step One: Understand Your Financial Situation

Make sure you understand how your current financial situation affects your buying decision before taking out a mortgage. If you don’t know how to buy a house in Texas, here are some financial factors to consider before taking the leap.

Future Mortgage Payment

Determine how much you’re willing to spend on a monthly mortgage. When considering whether to approve a mortgage, most lenders use the 28/36 rule:

• The total monthly debt payments should be less than 36 percent of your monthly income (also known as the debt-to-income ratio).
• The total housing costs (plus the future mortgage) should be less than 28 percent of your monthly income.

Using the average monthly income based on Texas Census data ($5,052) as an example, we can calculate a mortgage payment:

28% x $5,052 = $1,415

Debt-to-income Ratio

Most mortgage lenders want to be sure that you can afford the monthly repayments. They do this by figuring out your potential DTI (debt-to-income ratio) if you take a mortgage.

You won’t be approved for the mortgage if your DTI is too high, but some lenders are more lenient if you present a high credit score. Although some mortgage lenders may approve as high as 43 percent DTI, we recommend keeping your DTI below 36 percent.

To calculate the DTI, add up your estimated mortgage payment, plus all recurring monthly debt payments, and divide by the gross monthly income. When figuring out the amount you pay monthly in debt, make sure to include:

• Personal loans
• Student loans
• Child support or alimony
• Your estimated mortgage payments
• Auto loans
• Credit card payments

Let’s see a few examples of how to calculate DTI.

How to Calculate Debt-to-income Ratio

Dept type: monthly repayment

Auto loans: $375

Student loans: $204

Mortgage: $1,415

Credit cards: $182

Total debt per month: $2,176

The average monthly income in Texas is $5,052. A typical DTI will be 43 percent.

You take your debt and divide it by your income. So $2,176 divided by $5,052 which equals 43 percent.

The DTI can determine what kind of mortgage a borrower can obtain. Conventional loans typically require an after-mortgage debt-to-income ratio below 36 percent, an FHA below 43 percent, and a VA below 41 percent.

When mortgage lenders assess your eligibility, they don’t include costs (non-debt) like utilities, retirement savings, health insurance, or groceries, but it’s still a good idea to plan for these expenses too.

Closing Costs

Closing a real estate transaction involves several services such as document recording and title searches which cost money.

In most cases, the seller takes care of at least some of the closing costs, though the buyer pays for most of the expenses from their own pocket. A home buyer’s closing costs typically range from two to five percent of the loan and include:

• Property taxes
• Inspection costs
• Homeowner’s insurance
• Title insurance fees and policies
• Loan application fees
• Appraisal fees

Down Payment

Mortgage lenders don’t give 100 percent of the amount you need to purchase a home as they expect you’d bring some money to the table. The money that you pay is called a down payment. It helps to offset the lender’s risk and ensures that you have skin in the game.

For instance, if you make a $20,000 down payment while buying a home, you’ll have a strong reason not to default on the mortgage as you’ll lose money too if there’s a foreclosure on the property!

A conventional loan typically requires about 20 percent of the purchase value. Government-backed loans such as VA or FHA loans require lower down payments since they offset potential risk through other means (like PMI and VA funding fees).

The median home value in Texas is $224,065. We’ll use this as an example to calculate the amount needed for a down payment:

Conventional loan: $44,813 down payment (20%)

FHA loan: $7,842 down payment (3.5%)

VA loan: $0 down payment (0%)

Fortunately, there are numerous down payment aid programs available across the country to help low-income or first-time buyers afford a home. The programs are either second mortgages with forgiven or deferred payments or government grants in most cases.

Here’s some information on down payment assistance programs in the state:

• My First Texas Home offers three to five percent of the loan to help first-time buyers with a down payment.
• Eligibility may be based on the purchase price or income.

Step Two: Choose the Perfect Neighborhood

Your house’s neighborhood is as vital as its features and layout. Here are some factors to consider when deciding on the ideal area.

Home Values

After going through step one, you should have an idea of your budget. Research the current prices in various neighborhoods to narrow down your options and avoid visiting homes that are outside your price range.

Make sure to check previous home value trends to understand how your home’s value will appreciate in the next few years. A neighborhood within your budget is ideal, but it should also bring big profits when you choose to sell.

We’ll look at a few examples of how the homes in different Dallas neighborhoods have appreciated over time to help you understand how appreciation can affect your home’s value in the future.

Dallas Home Value Appreciation

Neighborhood	Home Value in 2010 ($)	Home Value in 2020 ($)	Appreciation Rate (%)
Southeast Dallas	62,126	151,394	143.6
Far North	238,755	387,436	62.3
Northeast Dallas	188, 050	334,144	77.7

Home value data (October 31, 2020) from Zillow

Local Lifestyle

After listing several neighborhoods within your budget and suitable for investment, you need to evaluate how each meets your preferences and needs.

While finalizing your list of areas, consider neighborhood features like:

• Crime rates
• Transportation options
• School districts
• Walkability
• Restaurants and amenities

Step Three: Find a Real Estate Agent

It helps to have a real estate agent as your main ally during your home buying process. They find and show you houses and recommend other services like lenders, escrow companies, and lawyers. Once you find the ideal property, your real estate agent will ensure you get the best deal.

Spend some time researching different real estate agents with experience in your desired area and price range. Here are some factors to consider when choosing a real estate agent:

• Overall review score
• Years of experience
• Individual complaints and reviews
• Experience in your desired neighborhood and price range
• How many transactions in the previous year

Once you have your list of potential real estate agents, schedule interviews with them to know if they’re a good fit. You can ask them about your preferred neighborhood including any planned developments and property value trends to know if they have the experience and knowledge to help you make an informed decision.

You can also do a home inspection with a real estate agent before signing the buyer’s agency agreement. It allows you to “test drive” the real estate agent to see if they can satisfy your needs before hiring them.

Step Four: Get Pre-approved for Your Mortgage

Most sellers only show their homes to potential buyers with a pre-approval letter. No one wants to waste time with home buyers who aren’t financially ready to submit an offer.

If you get pre-approved, you and the home seller can be confident that you will get the required finance to close the deal.

Compare Interest Rates

There are different mortgage terms, but most conventional mortgages last 30, 20, or 15 years. Short-term mortgages have a higher monthly payment and a lower interest rate.

Here’s a breakdown of different loan terms for a home using the median home value in Texas ($224,065) and assuming a down payment of 20 percent.

30-Year Mortgage vs. 15-Year Mortgage

	30-Year Mortgage	15-Year Mortgage
Loan Amount ($)	179,251	171,251
Interest Rate (%)	2.93	2.39
Monthly Payment ($)	749	1,186

Maintain Your Credit Score

After getting pre-approved for your mortgage, avoid any changes in your financial situation. If your credit score drops, it can affect the entire closing process.

Here are a few measures to help you keep a stable credit after receiving a pre-approval letter:

• Make every credit card payment on time
• Avoid closing any accounts that you’ve had open for a long time
• Don’t open new credit accounts

Choose a Lender

Apart from mortgage terms and interest rates, also ensure you find a lender who works with you to close the deal. If your mortgage lender has a slow underwriting process or takes too long to give you the required paperwork, it can affect your entire transaction. You don’t want a lousy lender who’ll derail that home buying journey.

Shop around to get a low-interest rate. Even if you’re pre-approved, getting different quotes on fees and rates is better. Those minor percentage points can impact your loan.

Step Five: Start House Hunting

The fun part of purchasing a house is viewing homes! But don’t forget that you’ll have to choose one eventually. Here are a few essential factors to note when looking at various homes.

List the Properties

Begin by writing a list of all you want in an ideal home. Rank each of the items based on their importance to you. It will help you separate the “must-haves” from the “nice-to-haves.”

You can then discuss how realistic the list is with your real estate agent. They have an idea of the types of homes in your target neighborhood and price range and can identify where you might need to make adjustments.

Trust your realtor. As long as he or she sticks to your budget, they can show you a wide variety of homes and might even shock you with a property you wouldn’t have thought to look at.

Understand Your Current Housing Inventory

The time you begin house hunting can affect how many options you find. For instance, Texas has the most homes available in April, and in November, home availability usually drops by 34 percent.

Step Six: Make Your Offer

After finding your preferred house, you can submit the seller an offer. You need to know how to make the offer attractive.

Currently, homes in Texas are available on the local market for up to 55 days. But all markets go through seasonal changes, and houses get snatched up in some months faster than in others.

You want to make an offer as soon as possible, especially if homes in your preferred neighborhood are unlikely to spend the annual average number of days on the market.

Aside from price, other factors can entice the seller to accept an offer. You can sweeten the deal by making compromises, depending on the state of the market.

Here are some popular negotiating tactics to get a win-win deal.

• Repair credits: If your chosen property needs repair, you can ask the seller for credits instead of getting them to pay for it. The seller won’t need to wait for contractors to do the job, and you’ll oversee the repairs later to your satisfaction.
• Seller concessions: The buyer pays for most of the closing costs from their pocket. You can save on the upfront costs by asking for seller concessions. You can get the seller to pay for the closing costs and roll the expenses into your mortgage instead of reducing the offer price.
• Letter to the seller: Many sellers are emotionally attached to their homes and want to ensure the new owner will maintain it well. You can write a letter to them to show how you view your life in the home.
• Inspection contingencies: Several purchase agreements come with inspection contingencies, which allow you to back out or change the offer if you encounter issues during the home inspection. If you’re confident in the property’s condition (like the seller shows you a recent home inspection report), you may forgo the contingency.

In fact, there are many more questions to ask when buying a house. You will always know whether a property and deal is excellent or not with their assistance.

Step Seven: Appraisals and Inspections

After the seller has accepted your offer, you still need to take a few more steps to ensure you get the home you bargained for. After appraisals and inspections, you’ll still have a chance to renegotiate if something unexpected comes up.

Inspections

Home inspections assure you of the property’s condition. Get a licensed inspector to check for any unexpected, unseen, or potential issues in different parts of the home, including:

• Electrical system
• Foundation
• Plumbing
• HVAC system
• Roof

If the property features a septic system, a septic inspection is conducted, including scoping out the tanks with cameras to check for potential problems.

Texas Specific Inspections

Texas recommends home buyers perform the following tests and inspections before closing on a home.

Termite inspection: Texas requires every home buyer who needs a VA or FHA loan to conduct a termite and pest inspection.

Radon testing: Texas recommends buyers test homes for radon. If the home seller hasn’t had any recent radon levels test, consider doing it before closing the deal.

Appraisals

An appraisal isn’t the same as an inspection as it’s not entirely about the condition of a property — it’s about the value. If you apply for a mortgage, the lender will need an appraisal to ensure the home is worth the asking price.

Step Eight: Closing and Final Walkthrough

Before closing the deal, you can do a final walkthrough of the home to ensure its condition hasn’t changed. While it’s okay to be excited about completing the entire buying process of your dream home, stay focused to avoid missing any problems.

During the final walkthrough, ensure to go through this checklist:

• Look for leaks by running the water and checking the temperature and pressure
• Check the air conditioning and heating system
• Test every appliance that’s included in the deal
• Test all electrical outlets and light switches
• Flush every toilet
• Make sure all belongings or trash from the previous owner has been removed
• Open and close every window and ensure it locks without any unexpected draft
• Ensure you have the working keys of every door (including smart lock technology and garage door openers)
• Inspect the walls, floors, and ceilings for cracks, peeling or chipped paint, or any other imperfections

On the closing day, be ready to sign a number of forms and paperwork. Your real estate agent or lawyer will explain each document before closing the deal, but you can still ask any questions before signing.

Final Thoughts

If you find yourself in the market for a new home, know that there is no lack of options. Texas has countless cities and neighborhoods to explore, with multiple different homes available at any price point.

It can be overwhelming just thinking about how to narrow down the perfect place for your family! Fortunately, we’ve compiled a list of 8 things every prospective homeowner should know before they start their search, so it doesn’t feel quite as daunting.

We hope this helps make finding your dream home more accessible than before. If you have any additional questions about buying a house in Texas please do not hesitate to reach out by phone or email.