- Good Credit
- Debt-to-income Ratio
- Down Payment
- Steady Income
1. Good Credit
To be able to get a mortgage to buy a house in Texas, lenders will typically require a minimum credit score of at least 620. A higher credit score can help you secure a lower interest rate on your mortgage.
2. Debt-to-income Ratio
Lenders will also want to ensure you can pay back the mortgage loan and will compare your income to your level of debt to ensure it's manageable. To determine if you can afford the mortgage, they will calculate your debt-to-income ratio, which is the amount of debt you have compared to your income, to determine if you can afford a mortgage. Typically, you will need a DTI ratio below 36%.
3. Down Payment
Depending on the type of loan you're getting, your credit history, and your financials, you will need to put down a down payment of between 3% to 20% of the purchase price. On top of this, you should also be sure you can afford the Texas buyer closing costs associated with purchasing a home.
4. Steady Income
To qualify for a mortgage in Texas, you will need to show the lender you have a steady job and make enough income. They will ask you to provide documentation to verify your income and employment, which will typically include tax returns, pay stubs, and bank statements.
- Get Pre-Approved
- Find a Great Texas Real Estate Agent
- Determine Your Buying Criteria
- Submit A Competitive Offer
- Deposit Earnest Money
- Do Your Due Diligence
- Get Through Appraisals and Inspections
- Perform a Final Walkthrough
- Attend the Closing
1. Get Pre-Approved
Determining how much house you can afford is always the very first step in the home buying process. Unless you are purchasing your Texas home via cash, you'll need to speak with a lender who understands the financing process inside and out. They'll coach you on how to become pre-qualified for loan approval and help you decide what is considered affordable for your unique buying experience. This process will include taking into consideration information like minimum credit scores, annual income, down payment options, and available loan products. Other items a lender can help you consider include potential property taxes, homeowner's insurance, expected repairs, and HOA fees.
2. Find a Great Texas Real Estate Agent
Once you've been pre-approved, your next task is finding a stellar real estate agent. This real estate agent will be your guide throughout the home buying process. They'll be the one helping you determine everything from your purchasing criteria to how much to offer on a single property. You'll want a real estate agent who has the following qualifications:
- Well-organized, professional, and courteous
- An abundance of experience
- High annual transaction volume
- Understands the market in your price range
- A repertoire of phenomenal reviews
It's important to note that you are not required to use a real estate agent to purchase a home in Texas. However, it is highly advisable. Having an advocate in your real estate transaction is a great way to ensure that you receive the best value for your dollar.
3. Determine Your Buying Criteria
After signing a buyer's agreement with your agent, it's time to begin searching for your new home. This means hammering out the fine details of your future home's features. How many stories does it have? Do you want a basement? How many bedrooms, bathrooms, and square footage would you prefer? Which of these features are you willing to sacrifice to remain within budget? Once decided, be sure to relay all of this information and more to your agent to aid in their search for your perfect home.
4. Submit A Competitive Offer
After finding a property that meets your specifications, it's time to submit an offer. This offer will include your potential purchase price, the amount of earnest money to be deposited after acceptance, any due diligence or inspection contingencies, and any incentives you are willing to give to make your offer more enticing. Examples of incentives include seller post-occupancy periods, buyer-paid closing costs, and waived inspection contingencies. Your agent is the expert here and will help ensure that your initial offer is both competitive and market-appropriate.
5. Deposit Earnest Money
Earnest money is a type of real estate security deposit that is paid upon an offer's acceptance. In Texas, this deposit is typically between 1-2% of a home's purchase price but can be more depending on the condition of your local real estate market. Remember, with earnest money, time is of the essence. Once your offer has been accepted by the seller, you will have a limited time to submit your earnest money before the contract becomes void. This time limit is typically outlined within your offer, so be sure to discuss this with your agent.
6. Do Your Due Diligence
Most real estate contracts will have a built-in "due diligence" period that begins once a seller accepts an offer. This due diligence is the agreed-upon length of time that a buyer can investigate a property and reasonably back out of the purchase agreement due to, and will usually last between 14-45 days. Items to consider when performing your due diligence include:
- Land Survey
- Septic System
- Flood Insurance
- Cellular Reception
- Crawlspace condition
- Electrical Wiring (especially in older homes)
7. Get Through Appraisals and Inspections
Once your due diligence period ends, your lender will want to inspect the home as well. The two products lenders use to determine a home's viability are the inspection and the appraisal. A home inspection considers a property's overall condition – interior and exterior. An appraisal will determine whether a home's contracted purchase price is appropriate given the local market condition. Unless you have waived your inspection/appraisal contingencies, these two key components of the home buying process will determine whether or not you follow through with the purchase. If either of these items comes back poorly, it can lead to renegotiation or even derail the entire transaction. Lenders will not lend on a property if it is not in good, livable condition or if the contracted purchase price is higher than the home's appraised market value. But, if both of these items are deemed appropriate by the lender, it's time to head to the closing table.
8. Perform a Final Walkthrough
Before closing, a final walkthrough is scheduled to ensure that the property is still in good condition. This is the time to inspect every detail of your future home – from flushing the toilets to scrutinizing the paint on the walls.
9. Attend the Closing
It's important to keep in mind that a deal isn't final until ownership has been properly transferred at the closing table. Items that can hinder your ability to fully close on a property include a recent name change, career switch, marital status update, and any large purchases, such as vehicles. Only after all the appropriate paperwork has been signed, closing costs have been paid, and all funds have been sent from the lender to the title/escrow company for disbursement is the transaction officially complete.
Buying a house in Texas is pretty straightforward as long as you meet the requirements. To buy a house in Texas, you should be prepared to pay a down payment and closing costs, you should have good credit, a low debt-to-income, and a high enough income. As long as you meet the basic requirements and you find a house you want to buy, you'll be able to purchase your Texas home within a few weeks.