Requirements to Buy a House in Texas: 12 Things Homebuyers Should Know Posted by Texas Real Estate Source

So, you're looking to buy a house in the great state of Texas? You're not alone—with its diverse landscape, booming cities, and affordable cost of living, Texas has become an increasingly popular destination for prospective homeowners.

Before you start browsing listings and attending open houses, it's essential to familiarize yourself with the specific requirements and steps involved in purchasing real estate in Texas. From FICO scores and income guidelines to loan programs and closing procedures, this guide is meant to provide first-time homebuyers with all the vital information needed to start their Texas home purchase.

Understanding the ins and outs of buying a house in Texas is crucial to ensure a smooth transaction and secure your dream home. Since every state has unique regulations and processes, being well-versed in the requirements for buying a house can make a big difference when it comes time to apply for loans or negotiate offers. Let's dive into everything, from down payments and closing costs to employment considerations, so you're fully prepared for each stage of this exciting journey toward becoming a Texas homeowner!

Things to Know About Buying a Home in Texas

There are a few legal details in the home buying process that differ between states. Homebuyers moving to Texas from another state should be aware of what is and isn't required when purchasing a home in Texas.

Dual Agency Isn't Allowed

For those unfamiliar with the term, "dual agency" occurs when a single real estate agent represents both the buyer and the seller. While this can theoretically be a good thing, since having only one agent involved might mean the deal gets closed faster, it also creates a significant conflict of interest. Your agent's job is to hold your best financial interests in mind, and doing that for two parties with conflicting interests (you, as a buyer, want a low price, and the seller wants a high one) is impossible.

Despite this, Texas is one of only eight states where dual agency is illegal, along with Alaska, Colorado, Florida, Kansas, Maryland, Vermont, and Wyoming. There are even a few hurdles when both the buyer's agent and the seller's agent work for the same brokerage. This is called an intermediary relationship, where the broker acts as the intermediary and the agents work as appointees, and this situation has special legal requirements.

Seller's Disclosures are Required

This is the case in almost every state. The seller is required to complete the Seller's Disclosure Notice, which explains the property's condition to the best of their knowledge.

However, the seller's disclosure may be incomplete. As the requirements are "to the best of the seller's belief and knowledge," there may be hidden defects that the seller is unaware of. There are also multiple versions of the seller's disclosure form. Sellers are not required to disclose home inspection results under Texas law, for example, but the Texas REALTORS' disclosure form includes additional disclosures that exceed the minimum requirements.

Texas Does Not Require Real Estate Attorneys

In 22 states, you'd be required to hire a real estate attorney to assist during closing. Texas is not one of these states, but hiring an attorney can still be a good idea. A few things that an attorney will do for you include:

• Preparing documents such as title insurance policies, transfer of funds documents, and mortgage deeds
• Reviewing documents to ensure correct completion and correcting any errors
• Provide legal representation during closing for any unexpected changes
• Clarify and help you navigate unfamiliar legal terminology, contracts, etc.
• Represent you in court if necessary and contact any relevant professionals, such as surveyors, to solve any issues

Credit Score Requirements

Is there a minimum credit score required to buy a home? Technically, no. However, having a minimum credit score of at least 620 is highly recommended if you're applying for a conventional mortgage. If your score is lower, your lender might offer you a higher interest rate than optimal and may not approve your loan if your score is too low.

However, while Texas has a lower average FICO score than other states, it is still a respectable 680, more than enough to meet the suggested minimum. If you're worried about having bad credit—or want to increase your chances of getting reasonable interest rates—you can start taking steps to improve your credit well in advance of applying for a loan, such as paying off outstanding debts, disputing inaccuracies on your report, and avoiding new debt applications.

In addition, homebuyers with credit scores below the recommended score can find loans with lower credit score requirements. FHA loans only require a credit score of 580, for example. A few lenders might go even lower for VA loans. However, credit minimums vary by lender, so it's a good idea to shop around.

Debt-to-Income Requirements

Debt-to-income ratios involve several calculations, including front-end and back-end ratios. The front-end ratio is essentially how much income would go towards all monthly housing expenses, while the back-end ratio is how much income would go towards covering all fixed monthly payments, such as mortgage, debts, and credit card fees. You can get an idea of your DTI by adding up your fixed expenses plus your best estimate of your monthly variable expenses, then dividing by your gross monthly income—what you make before taxes. Then multiply by 100 to get a percent.

The important takeaway for your debt-to-income ratio is that 43% DTI is typically the maximum to get approved for a mortgage. A DTI below 36% is even better, as it indicates that you're less likely to default. Since that's a lower-risk loan, you might be offered a better interest rate and mortgage terms.

Income & Employment Requirements

Similarly to your FICO score, there's technically no minimum income requirement to purchase a home, but lenders will be evaluating your ability to repay the loan. The most important factor is showing a stable income stream, rather than having a minimum paycheck. Most lenders require at least two years' worth of W-2s without significant employment gaps before approving your loan application.

Self-employed borrowers can present tax returns for the previous two years. If you're a freelancer, it's essential to maintain detailed records of your earnings and expenses over the past two years. Lenders will want proof that your freelance work has been consistent and lucrative enough to meet mortgage requirements. For those juggling multiple part-time jobs, make sure all your employers can verify your employment history and provide documentation of your earnings.

If you don't have a two-year job history, though, lenders do consider mitigating factors. If you have a high credit score and a low debt-to-income ratio, it also demonstrates reliability, which may help them approve you.

Down Payment Requirements

It's essential to save for a down payment and explore various down payment options to find the best fit for your financial situation. In Texas, the typical down payment is around 20% of the purchase price. However, you can also find low-down payment options that may require as little as 3% or even no money down. Government-backed loans, such as FHA, USDA, and VA loans, are designed to help make homeownership more accessible by offering lower down payments and more relaxed credit requirements compared to conventional loans.

Down payment assistance programs are also available in Texas for eligible homebuyers who may need an extra boost to save for a home. The My First Texas Home program offers first-time buyers and veterans a 30-year low-interest mortgage with optional assistance for down payments and closing costs. The My Choice Texas Home program, also provided by The Texas Homebuyer Program, is a similar program for repeat homebuyers.

Another popular Texas homebuyer program is the TSAHC Home Sweet Texas Home Loan program, which grants eligible moderate- or low-income buyers either a grant or a deferred, forgivable second loan that can be used towards their down payment. By exploring these various options, you'll have a better chance of finding what works best for you and achieving your dream of homeownership in Texas.

Home Buying Steps

Start by taking an honest look at your financial situation and determining how much house you can afford, considering not only the purchase price but also all aspects of homeownership. Some things to account for in your budget include:

• Monthly mortgage payments
• Down payment
• Closing costs (typically 2%–6% of the home price for buyers, including home inspection fees, title searches, etc.)
• Texas property taxes
• Insurance premiums (both homeowners insurance, which is required by mortgage lenders, and private mortgage insurance (PMI), which may be required if your down payment is less than 20%)
• Maintenance expenses (budgeting for 1%–4% of the home price annually is a common suggestion, and having an emergency fund is always a good idea)
• Possible HOA fees

Familiarize yourself with the down payment assistance available in Texas, such as My First Texas Home or TSAHC's Home Sweet Texas Home, and monitor mortgage interest rates that will affect your monthly payments.

When you have an idea of how big of a home loan you can reasonably take on, the next step in the home-buying process is to start shopping around for mortgage lenders. If you're prepared to buy a home within the next two or three months, it's time to pursue a mortgage pre-approval. However, you may want to find a good local real estate agent first.

Find the Right Real Estate Agent

While you can apply for pre-approval before you talk to an agent, why not leverage a local agent's connections? Good Texas real estate agents will know multiple reputable mortgage lenders that they've personally worked with. They can help match you to mortgage lenders who specialize in the type of home loan you're looking for. A local mortgage lender also offers you an advantage as a buyer, just like a local real estate agent, a regional lender knows the local real estate market.

Having an experienced local agent will also help you further down the line, as they will have connections with professionals in related fields, such as local home inspectors, renovation contractors, title companies, and more. With proper preparation and support from knowledgeable professionals, purchasing a house in Texas can be a smooth process.

Finding the right real estate agent is crucial for success in the competitive Texas housing market. Work with someone who has experience in the neighborhoods you're interested in and specializes in helping buyers like you. Many agents specialize in a niche, whether it's a type of home, a specific type of buyer (such as real estate investors or first-time homebuyers), or a particular area.

Researching housing market trends is essential, too; for example, analyze Austin's market if that's where you want to buy to understand whether it's a good time to invest there, or find the median home price of neighborhoods you're interested in to narrow down your choices. Your agent will have experience with the local market's patterns and can help you buy a home at the right time to save money.

Pre-approval Process

Obtaining a pre-approval letter is like having a golden ticket in the home-buying journey, as it demonstrates to sellers that you're a serious and financially capable buyer. The importance of pre-approval cannot be overstated, as it not only gives you an edge over other potential buyers vying for the same property but also helps you understand how much house you can afford and identifies any potential roadblocks to qualifying for a home loan.

To improve your chances of getting pre-approved, ensure that all required documentation for pre-approval is accurate and up to date. If necessary, work on improving your credit score, and seek guidance from experienced professionals.

Note that prequalification is not the same as pre-approval. A prequalification is essentially a lender's estimate of whether you will qualify for a loan based on the information you provide. It typically takes only 1–3 days to receive a prequalification letter.

Pre-approval, on the other hand, is much more rigorous and involves an official application, an extensive credit and financial check, and a specific loan amount and interest rate that the lender is willing to commit to lending you, as long as you meet their conditions. This typically takes 7–10 days, and the pre-approval is usually valid for 90 days, although the window may be shorter.

Here's a quick overview of some common documentation required for pre-approval, and ways to improve your chances:

To start the pre-approval process, gather the required documents and contact multiple lenders to compare their offers. Keep in mind that each lender may have different requirements or guidelines for determining eligibility for mortgage loans. In addition, starting the pre-approval process with multiple lenders can negatively impact your credit score due to a pre-approval credit check.

Finding a Home & Making an Offer

The following steps to buying a house in Texas are what you've been waiting to do from the beginning: finding the perfect home and making a bid to buy it. Making an offer on a house involves several factors, which is one of the reasons why working with a local real estate agent is essential when searching for homes in Texas. Once your agent has helped you find a home that meets your criteria, you'll need to know what similar homes are selling for in order to make a competitive bid.

Lean on your agent's experience when it comes to local market analysis and negotiating for the best price. Since dual agency isn't allowed in Texas, you can trust that your agent will be fighting for your best financial interests.

Closing Procedures & Costs

When it comes to closing, understanding the procedures and costs involved will save you both time and money in the long run. In Texas, there is an option period after you and the seller sign a contract, typically lasting 10–15 days, during which things like the home inspection and appraisal occur. Note that the inspection and appraisal aren't the same thing—an appraisal provides an unbiased estimate of the home's value to assure the lender that the house is worth the loan you're asking for.

During closing, your home loan will be finalized, and you will be required to provide proof of homeowners' and title insurance. Title insurance protects you and your lender from potential issues with the property's ownership history.

Be prepared for escrow fees as well, which protect the earnest money deposit and cover administrative costs. Escrow fees in Texas typically range from $350 to $700 and are usually split between the buyer and seller, although this is negotiable.

Once everything has been signed, the money has been transferred, and the final walkthrough has been completed, the real estate transaction is complete, and the home is yours.

Are You Ready to Buy a House in Texas?

As you embark on this exciting journey to homeownership in Texas, knowing the requirements you need to meet beforehand will help ensure a smooth process. With careful planning and the right resources, your perfect home in the Lone Star State is just around the corner. Happy house hunting!