Texas has seen a rising real estate market with especially strong growth in several metro areas. Across the state, home values have increased over 8% in the past year, and have gone up an average of $75,000 over the past five years. The average listing in the state is now $275,000.
In the Austin metro area, listings are at $390,000 and the Dallas area sees listings just a bit lower at $380,000. Other areas, such as Houston, the most populous city, list at a more reasonable $290,000, and rural locations, such as Lubbock, list at $190,000.
So while Texas has a cost of living that is below the national average, ownership can still be tough for many home buyers. The savings required for a standard down payment exceeds $55,000, just about matching the states median income. The home buying process for many is stressful when looking at the entire cost of purchasing your dream home.
Fortunately, there are many options to help home buyers attain the American Dream in Texas. The Texas State Housing Affordability Corporation offers several programs for first time buyers, and others looking to finance a home in Texas.
Federal programs are also available and used quite frequently, and because of the diverse regions of Texas, many types of home buying assistance is available. All of these options together can help low-income home buyers purchase their dream home.
Best State Loans & Grants for Low-Income home buyers in Texas
The Texas State Legislature created the State Housing Affordability Corporation in 1994 to help make homeownership more attainable for Texans. They offer grants and other down payment assistance programs to help low-income buyers achieve ownership, improve their financial situation, and get working families into high quality housing.
Grants to help with down payment and other closing costs are provided through two programs. The Texas Heroes program provides assistance to teachers, firefighters, police, veterans and other first responders. The Home Sweet Texas program is specifically targeted to low and moderate income home buyers.
Each of these programs provides 30 year fixed rate loan options and a grant to help with down payment and closing costs that doesn’t need to be repaid. The grant is capped at 6% of the loan amount and does not require you to be a first time home buyer.
Income limits and the 6% cap are also increased in certain targeted growth areas. Additional support with these programs includes mortgage tax credits, but the mortgage tax credit (called a certificate in Texas) is only for first time buyers.
Many cities in Texas also provide home buyer assistance for low-income buyers. This program in Fort Worth, is one that is quite common in most cities. It is geared towards first time buyers, but you can also qualify if you have not owned a home in the past three years.
The Fort Worth program offers up to $20,000 in down payment assistance for eligible buyers making 80% of the area median income (AMI). This is currently around $60,000 for a family of four. Home buyers have to agree to reside in the home for a certain amount of years to receive the assistance.
As you explore options for to purchase a home in Texas, make sure to have your real estate agent check on financing options with local agencies and for other state home buyer assistance programs. A local, expert agent should be aware of what options are available and be able to guide you to those resources.
Best Federal Mortgage Options for Low-Income Buyers
The Federal Housing Administration (FHA) also offers mortgage assistance programs that are quite popular in Texas. The FHA program typically offers buyers a 3.5% down payment option, but it requires mortgage insurance, which could potentially increase your monthly payment significantly.
However, the FHA program does allow those with poor credit, or with little down payment savings, to qualify for an affordable loan. To qualify for a 3.5% down payment a FICO score of 580 is required. Those with a score lower than that can still qualify 10% down payment rate as long as their FICO score is higher than 500.
Qualifications for the FHA program also include: two years of continuous employment, a debt to income ratio of less than 43%, and the property must pass several inspections and appraisal qualifications. There are limits to the FHA loan amount, so thoroughly research how to take advantage of this program for your home purchase.
With all the military bases in Texas, mortgage assistance from the Department of Veteran Affairs may be a good option. These programs usually don’t require a down payment, but do have tough credit score requirements. VA loans require specific service records and other information to verify eligibility, so be sure to have your service records available when filling out the VA eligibility form.
Learn More: The Complete Guide to FHA Loans By State
Best Private Lender Programs in Texas for Low-Income Home Buyers
Many private lending options can also be competitive with FHA first-time home buyer programs. Fannie Mae for instance overs the HomeReady program, which only requires a 3% down payment, and has fewer restrictions on the homes that can be purchased. A higher credit score is needed, but it still allows flexibility in coming up with closing cash and has less strict mortgage insurance requirements.
Private lenders have similar programs and companies like Quicken Loans or CitiMortgage offer easy ways to explore conventional loan options to get the best rate. Other private lenders can also work with federal programs as well. There are so many different options making it well worth your time to explore what's available before giving up on conventional loans.
Home Buyer Rebate
Another way to save cash, or better yet put it towards closing and down payment costs, is to ask for a rebate when purchasing. This rebate comes from your real estate agent who is willing to give back part of their commission to help you afford the home of your dreams.
The rebate can often be a powerful tool when competing in Texas’ strong housing market. If a home is listed at $200,000, a buyer that’s receiving a rebate could potentially offer $203,000 — and pay the exact same amount as another buyer that offered $200,000.
Clever Partner Agents are all top-rated, full-service agents from major brands and regional brokerages (Keller Williams, RE/MAX, Century 21, etc). The key differentiator is Clever’s Home Buyer Rebate program as an additional cost savings opportunity — buyers who spend $150k and above get a $1k rebate to help cover their closing costs.