More than 393,100 homes were sold in Texas in 2020, a nearly 10% increase from 2019. Despite the 2020 economic standstill caused by COVID-19, approximately $38 billion was spent on the construction of new single-family residences. For good reason, Texas has been one of the fastest-growing states in the United States. Because of its strong employment market, flourishing cities, and adequate space, Texas is a favorite state for young professionals and first-time homebuyers. Buying your first house is a significant investment, and it is critical to understand the subtleties of Texas real estate before plunging in. There are unique criteria and restrictions to be aware of when investing in real estate in any other state.
Here are the prerequisites for how to buy a house in Texas, whether you are a first-time or experienced homebuyer, or even with no money and bad credit.
How to Buy a House in Texas
FHA loans are frequently used by first-time homebuyers with credit scores around 580. Adults should ideally have credit ratings of at least 620 and debt-to-income ratios of 28 to 31 percent. A down payment of at least 20% of the total property value can also result in a cheaper interest rate. There are, however, solutions for buyers who are unable to make 20% down payments, have low credit scores, or have high debt-to-income ratios.
#1. Obtain Pre-approval
You will be required to submit an application with your personal information during the mortgage pre-approval procedure. Lenders may confirm this information by contacting your current employer to validate your employment history, validating your current assets, and contacting any of the three credit reporting agencies (TransUnion, Equifax, and Experian) to determine your credit score.
#2. Start Looking for a House
There are numerous ways to find your ideal property. Many consumers start their research online to become acquainted with the current market and to explore other neighborhoods. The next step is to employ a real estate agent to assist them in narrowing their options.
Anyone looking for a property should make a list of vital attributes and show it to their real estate agent or keep it nearby when exploring online to find the ideal traits they’re looking for.
They should assess the overall cost, size (square footage, number of bedrooms and bathrooms), overall condition, any potential repairs or upgrades, location, neighborhood, school district, property taxes, front yard and backyard size, and other factors. It is critical to be patient during this process. You might need to look at many houses before choosing one.
#3. Make a proposal
When you’ve found the perfect home, make a written offer with your preferred price, an earnest money deposit (1-2 percent of the entire cost), and a timeframe for the seller to react. If you’ve engaged a real estate agent, they should handle this for you.
If the seller refuses to haggle to the price you want, don’t be scared to walk away. There are many available homes to pick from, and staying within your budget will save you money in the long run.
#4. Arrange for a home inspection and appraisal.
A qualified inspector will evaluate a home for any electrical, roofing, appliance, or structural issues. You will be given a list of these issues, and any substantial issues should be discussed with the seller prior to closing. If several repairs are required, buyers can request a price reduction, or the seller can address the problems or cover some closing costs.
Before securing a mortgage loan, a home assessment is equally as necessary as an inspection. This will determine the property’s current value. Buyers should always undertake a final walkthrough to ensure that the seller has rectified any agreed-upon issues and that nothing has been neglected.
A buyer should bring a legitimate form of identification, proof of funds, and any other essential papers to a closing meeting. Before signing the mortgage note and deed, they will be requested to carefully read the closing disclosure, validating the loan estimate and settlement statement.
What Do You Need To Buy A House In Texas?
People travel to Texas for its culture and many housing options, which range from rural communities to big cities. That means the competition can be fierce. But don’t worry, you’ll discover a home within your budget range.
Of course, the amount of money required to buy a house in Texas is determined by your personal financial position, including how much house you can afford, your credit score, the down payment you can make, and the sorts of mortgage help programs you may be eligible for.
According to one survey, the average credit score required to buy a house in Texas ranges from 662 to 730. However, there may be programs available even if your score is lower. Remember that the higher your credit score, the more likely you are to qualify for the best mortgage rates.
Many of the programs discussed below require at least a 620 credit score, but to qualify for a government-backed Federal Housing Administration (FHA) loan, you just need a 580 credit score, and maybe even less if you can put down a higher down payment.
How to Buy a House in Texas Even if You Have Bad Credit
Remember that, while having excellent credit is crucial, your lender will also evaluate other aspects of your financing. In this section, I’ll show you five (5) ways to secure a mortgage for or buy your house in Texas, even if you have bad credit.
#1. Check Your Credit Score
The first step in applying for a mortgage is to determine your FICO credit score. You don’t want to go through the agony of shopping for a property only to be turned down because of your bad credit. Credit Karma and FicoScore both provide free access to your credit score.
Knowing your credit rating will assist you in the following ways:
- Make a firm decision on the type of loan program you want to use. Loan programs such as FHA, which need a “minimum” credit score of 580, maybe a decent option.
- Identify and correct the negative factors affecting your score.
Most Texas lenders look at Equifax, Experian, and TransUnion credit reports, as well as your FICO ratings based on these reports. They rely on your middle score. So, if you have 720, 680, and 620 credit scores, the lender will usually base their decision on the 680 score.
#2. Repair and Improve Your Credit Score
When you receive your credit report, you should investigate why it is low and what is causing it. The majority of the time, it will be one of the following;
- You have numerous late payments.
- You need sufficient credit.
- Accounts in collection.
- You have used all of your credit cards.
- You have been through bankruptcy or foreclosure.
Now that you’ve figured out what’s causing your bad credit, you need to figure out how to fix it or improve it. Some simple techniques to repair your credit on your own include:
- Dispute any mistakes in your report: If there are any bills or items that you do not recognize, it is best to report them to the credit bureaus.
- Make a late payment: On-time payment accounts for 35% of the credit score. If you see a string of late payments on your record, pay them off as soon as possible. The debt terms might be negotiated with the lender.
- Pay down your credit card amount because it has a negative impact on your credit utilization ratio.
- Get your collections accounts removed. You can respectfully request that the creditor do a pay for delete for you. To have your credit score improve, you must eliminate your collection accounts.
I normally encourage people who want to buy a house to fix their credit for at least six months before applying for a mortgage.
#3. Apply To Lenders Who Require Low Credit Score
If you want to buy a house in Texas but have bad credit, you should look into mortgage programs with low credit criteria. The Federal Housing Administration (FHA) loans, which are administered by FHA-approved lenders, are an excellent example.
To qualify for an FHA loan, you must have a credit score of 580 with a 3.5 percent downpayment or 500 with a 10% downpayment. While FHA loans have a maximum loan amount that varies based on where you buy your property, they are still your best chance when buying a house with bad credit.
#4. Work With a Cosigner Who Has a Good Credit Score.
This is one of the less-traveled paths for people trying to buy a property with bad credit. If you have bad credit and want to buy a house, you can get a co-signer mortgage. It entails having a friend or relative cosign on your house loan to assist you in qualifying.
Loan schemes that accept cosigners include FHA and conventional loans. With the average pay falling far short of the average home sale price, obtaining a co-signer will help to increase your purchasing power. It is also an excellent strategy to improve your overall credit.
If you use a cosigner, keep in mind that they are not required to be on the deed but are simply obligated to pay the mortgage like you. Most crucially, they can be refinanced off the loan in the future.
What Is The Down Payment On A House In Texas?
You’ve probably heard that in order to buy a house in Texas, you need to put down 20%. That is sound advice when saving for a down payment because the more you put down, the lower your monthly mortgage payment will be. Furthermore, by putting down at least 20%, you avoid having to buy private mortgage insurance or PMI. This is because the more of the house you personally own, the more likely you are to perform your commitment appropriately. However, there are a number of different programs available to assist you in achieving your goal of home ownership with significantly less money down.
One option to consider is a loan from the Federal Housing Administration (FHA), which requires only a 3.5 percent down payment. You can also receive a conventional loan with as little as 3% down if you qualify. Those who qualify for USDA or VA loans are not required to submit a down payment.
Furthermore, each state has separate state-specific programs; for example, first-time home buyer programs in California differ from those in Texas. That is why it is critical to engage with a local source who can assist you in researching all of your possibilities.
One of the best first-time house-buying advice is to look into programs that can help you make the down payment as inexpensive as possible. The Texas Department of Housing and Community Affairs offers a variety of services to qualified borrowers that can be obtained through a network of certified lenders. Consider the following:
#1. My First Texas Home Program:
If you are a first-time home buyer (or haven’t bought a home in the last three years) with a credit score of at least 620, you may be eligible for this program. A 30-year, fixed-rate mortgage loan will come with a down payment and closing cost help. You may also be eligible for first-time home purchase tax breaks.
#2. My Choice Texas Home:
This program is open to all home buyers, not just first-time buyers, and includes many of the same benefits as My First Texas Home, such as down payment and closing cost assistance on a 30-year, fixed-rate mortgage loan. A credit score of at least 620 is required, and it is subject to income and purchase price constraints, among other requirements.
#3. Texams Mortgage Credit Certificate Program:
This is another program for first-time home buyers that gives additional potential federal tax savings. If you qualify, you can even combine it with the My First Texas Home Program for even more savings.
It’s important to remember that not everyone participates in every state program, especially if the option requires a state housing authority to place a lien on the home. However, because grants do not have to be repaid, lenders will almost always accept them as a source of down payment finance.