First-Time Home Buyer Guide for Texas

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By Sam M. Huisache Updated March 6, 2023


What's a first-time home buyer? | Home buyer assistance programs | Options for low-income buyers | Buying for the first time | FAQs

As a first-time home buyer in Texas, you have access to programs that can be good alternatives to conventional loans for buyers who have low income, don’t have a down payment saved up, have a low credit score, or live in an expensive area.

First-time home buyers in Texas can get assistance with:

  • getting approved for a mortgage loan
  • down payment costs
  • closing costs
  • general buyer education
  • purchasing affordable housing allocated for families with low income

🏠 Housing market in Texas

It's a seller's market. Most homes are going off market quickly as buyer demand exceeds the amount of listed homes.The resale market is competitive. Home buyers can opt for new construction homes, which don't typically involve a bidding process.

Property values are increasing. During 2022, home values in Texas will grow by 7.4%.

Mortgage rates are low. In Texas, mortgage rates average 3.26% for a 15-year mortgage and 3.99% for a 30-year mortgage. For comparison, the national rates are 3.44% and 4.24% respectively.

» READ: 8 Definitive Steps to Buying a House in Texas

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What are first-time home buyer requirements in Texas?

A first-time home buyer is usually someone who is purchasing a home for the first time, or who hasn’t owned a home during the past three years. Many programs have additional financial and residency requirements.

Credit score | Debt-to-income ratio | Residency

What shape do my finances need to be in?

First-time home buyer programs are designed to help people get into a quality home affordably.

One of the most important financial factors is your credit score, as it can affect the interest rate of your loan: the lower your credit score, the higher your potential rate. Aim for a credit score of 620 or higher when you’re ready to purchase if you can!

Most down payment assistance programs don't offer the full 20% of the loan that lenders recommend buyers supply, so you'll need to budget enough to cover the difference out of pocket.

Buyers who pay less than a 20% down payment may be subject to pay for private mortgage insurance (PMI), which is usually an additional 0.55% to 2.25% of the mortgage each year.

🤔 How down payments impact monthly mortgage payments
At the median home price ($298,424) in Texas with a 20% down payment, you can expect approximately a $1,427 monthly mortgage payment.
With just a 10% down payment and PMI of 1%, the monthly mortgage payment becomes $1,706 approximately.
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Don't forget about closing costs, which usually include an inspection fee and appraisal fee among other items. Closing costs are typically 2–6% of the total cost of your home, so be sure to account for that when determining your budget.

» LEARN: Tools lenders use to evaluate home buyers

What credit score does a first-time home buyer need?

Most assistance programs require a credit score of 620, which is recommended for conventional loans to get the best interest rates. However, you can qualify for a Federal Housing Administration (FHA) loan with a credit score as low as 580.

Your credit score lets lenders know how likely you are to repay on time. The lower your credit score, the less likely. If your credit score is relatively low right now, you can quickly improve your credit score before entering the housing market.

What debt-to-income ratio do you need?

First-time buyers generally need a debt-to-income (DTI) ratio between 29% and 55%.

Some programs set maximum DTI ratios to keep first-time home buyers from getting in over their heads on a big mortgage — and monthly mortgage payments.

Your maximum DTI ratio can also depend on your credit score.

Texas home-buyer program Max DTI ratio
Texas Affordable Housing Association Corporation (TSAHC) No max
Texas Department of Housing & Community Affairs (TDHCA) 55%
Federal Housing Administration (FHA) 43%
U.S. Department of Agricultural Affairs (USDA) 46%
U.S. Department of Veterans Affairs (VA) 41%
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Residency requirements

For state-level programs like TSAHC and TDHCA, you need to buy your home in Texas. You’ll also need to move there within 60 days of purchasing to qualify for TSAHC assistance.

City- or county-level programs may have more restrictions. However, as long as your future home will be within individual programs’ jurisdiction, you’ll typically meet residency requirements.

What are first-time home buyer programs in Texas?

The two state-level first-time home buyer programs are administered by Texas Affordable Housing Association Corporation (TSAHC) and Texas Department of Housing & Community Affairs (TDHCA), two state government agencies.

In addition, the Southeast Texas Housing Finance Corporation (SETH FC) is a statewide non-profit that helps buyers with each step of the buying process.

Mortgage | Down payment | Tax credit programs | Closing costs

While not explicitly for first-time home buyers, national government programs like the FHA, USDA, and VA loans are great options. City-level governments also offer assistance that doesn’t typically come with national programs, such as with down payments and closing costs.

In some cases, you can combine one program for mortgage or down payment assistance and another for closing costs or tax credits.

Tools lenders use to evaluate home buyers

Credit score

Lenders use a credit score to determine a borrower's trustworthiness.

» READ: What Credit Score Is Needed to Buy a House?

Debt-to-income ratio (DTI)

Lenders evaluate a borrower's debt-to-income ratio to prevent the borrower from taking on too much debt and defaulting on their loans. Typically, lenders want your DTI to be 36–43% of your gross income.

To calculate your DTI, add all of your recurring monthly debt payments, plus your estimated mortgage payment, and divide it by your gross monthly income (before taxes).

» READ: How to Find High DTI Mortgage Lenders

Loan-to-value ratio (LTV)

Lenders use a loan-to-value ratio to ensure they provide ONLY the absolutely necessary amount of money to a borrower.

To determine your LTV, lenders divide your home loan amount by your property's value.

An LTV of more than 80% is considered risky, since it means the lender will lend more money to their customers. However, that doesn’t mean a lender won't offer a loan to a borrower with a high LTV.

Private mortgage insurance (PMI)

Lenders use private mortgage insurance to protect their investment in case a borrower defaults on their loan. PMI usually equals 0.3–1.15% of the loan amount.

Lenders typically require PMI on conventional mortgages where the borrower's down payment is smaller than 20%.

Lenders will cancel PMI automatically once a mortgage's LTV reaches 78%.

» READ: How Much Will My Mortgage Payment Be?

Price-to-income ratio (PTI)

Lenders use a price-to-income ratio to calculate housing affordability.

To calculate PTI, lenders divide median home prices by median household income.

If the PTI of a location is over 2.6, it usually means home prices exceed what people can afford based on the local median household income.

What are first-time down payment assistance programs in Texas?

For down payment assistance, there are state-level government programs through the Texas Department of Housing and Community Affairs (TDHCA) and Texas State Affordable Housing Corporation (TSAHC) as well as some city-level programs.

A non-profit organization called SETH FC also helps with down payments, but it isn’t available in every city.

Government programs

My First Texas Home Program, offered by TDHCA, provides first-time home buyers and veterans with down payment assistance at 2–5% of their mortgage amount. This assistance is in the form of a three-year lien at 0% interest.

Unless you sell or refinance your home, or you pay off your original lien, your second lien will be forgiven after three years — that is, you won't need to pay back the money.

Check out the TDHCA's Readiness Calculator to see if you're eligible.

If your household income is below $123,625, check out one of TSAHC's programs.

Home for Texas Heroes and Home Sweet Texas both provide down payment assistance for up to 5% of your mortgage loan amount. This assistance could be as a grant, which doesn’t need to be repaid, or a second lien that only has to be repaid if you sell or refinance your home within three years.

  • Home Sweet Texas is open to all first-time buyers, regardless of profession.
  • Home for Texas Heroes is specifically for public school staff, emergency personnel, corrections officers, and veterans. This program has a slightly higher income threshold, so it's your best bet if you’re a qualifying professional.

Income and price limits are higher if you live in one of TSAHC's target areas.

City- and county-level programs

You might still get assistance from a major Texan metro if TDHCA and TSAHC programs aren’t right for you.

Even if you live outside a major city, it's worth contacting the municipal office where your future home is to check if it offers any down payment or closing costs assistance.

» JUMP: Closing costs assistance programs in Texas

Nongovernment programs

SETH FC is a non-profit organization that provides down payment assistance through its SETH GoldStar and SETH 5 Star programs. While SETH 5 Star has a grant option, SETH GoldStar provides assistance as a second lien only.

What are first-time mortgage assistance programs in Texas?

Although national loan programs (FHA, USDA, VA loans) are fairly accessible, state-level programs come bundled with additional benefits that national programs alone don’t — for example, down payment assistance and tax credits.

Government programs

If you need mortgage assistance alongside down payment or closing costs assistance, state programs like TSAHC and TDHCA provide great options.

National loan programs like FHA, USDA, and VA loans provide mortgages for buyers who may have lower credit scores or no down payment saved, live in a rural area, or are veterans.

Nongovernment programs

SETH FC assists buyers with down payment and closing costs assistance while giving buyers the option to choose a loan from the national programs.

Loan program Down payment amount Credit
Best for...
Conventional fixed-rate 20% 620+ Home buyers with an average credit history, who can have the same interest rate for the entire duration of the loan
<20% + PMI
TDHCA $0 (will assist with down payment) 620+ Low- to moderate-income family households who need down payment assistance
TSAHC 3% 620+ Single-person households who need down payment assistance and are employed as teachers, firefighters, or another type of public servant
SETH FC: 5 Star and GoldStar 0–10% (based on loan type) 640+ Home buyers with average credit history looking to purchase a home in a rural area
FHA loans 3.5%+ 580+ Borrowers with poor credit history, including first-time buyers and seniors. Lenders may require PMI.
10%+ <580
USDA loans $0 620+ Low- or moderate-income buyers in less populated or rural regions, so long as their income doesn’t exceed 115% of the area's median household income
VA loans $0 N/A (620+ recommended) Veterans and active duty service members, who tend to be offered more competitive interest rates
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With all the different options available, it may be hard to choose which program is best for you. A real estate agent is not just useful for finding a home, but they can also assist you with finding the assistance program that will best fit your needs.

👋 Need a great agent on your side?

Connect with top local agents who can help you get a great deal on a new home. Eligible buyers also earn cash back after closing.

What are first-time home buyer tax credit programs in Texas?

TSAHC and TDHCA offer mortgage credit certificates (MCC), a mortgage interest tax credit that reduces the amount of federal income taxes you pay every year for the life of your mortgage.

The tax credit is 20–40% of your total mortgage interest, up to $2,000 a year.

What about the First-Time Homebuyer Act?
President Biden's $15,000 tax credit for first-time home buyers didn't pass in 2021. However, you can still take advantage of other tax credit programs in 2022.
Show more

Typically, you can take advantage of the MCC without having to get your mortgage assistance or down payment assistance from these programs.

TSAHC and TDHCA both have income and purchase price limits for their MCC programs, but they don’t require a minimum credit score if you use the MCC by itself.

What are first-time home buyer grant programs in Texas?

Grants, which don't have to be repaid, are a great option for home buyers who’d like to take out as little in loans as possible to purchase a home.

If you get your mortgage through a TSAHC-approved lender, your down payment assistance could be in the form of a grant.

If you qualify for select FHA loan types or a Charter Level Income Conventional loan through an approved SETH FC lender, you can receive a grant from SETH 5 Star for up to 5% of your loan amount.

What are first-time home closing costs assistance programs in Texas?

In Texas, local programs typically offer closing costs assistance alongside down payment assistance.

Government programs

TDHCA’s My First Texas Home program helps with closing costs in the form of a 30-year, low-interest loan for up to 5% of your mortgage amount. If you also need down payment assistance, that 5% will go toward both the down payment and closing costs assistance combined.

Nongovernment programs

Both the SETH 5 Star and GoldStar programs provide closing costs assistance alongside down payment assistance. To qualify, you must get your mortgage through an approved SETH lender.

What assistance is available for first-time home buyers with low income?

If your combined household income is below $125,000, it's worth looking to see if you qualify for programs for low-income buyers. If your household income is above $125,000, a conventional loan may be your best bet — they typically have lower interest rates compared with assistance programs.

Some areas have affordable home options for low-income households. For example, Austin's Homes for Sale program partners with builders to sell homes to buyers who meet their income limits. Check with your local government to see if similar programs are available — they’re a great deal when combined with an assistance program.

What's the process of buying a house for the first time?

Step 1: Evaluate your financial situation

Before getting on the market, make sure your credit score and debt-to-income ratio are up to snuff, as they determine which assistance programs you’ll be eligible for.

Review your budget for how much you can put down and pay each month for your mortgage. Your monthly payments might also include homeowner association (HOA) fees or PMI, so budget for those as well.

Step 2: Choose the right neighborhood

Texas is a diverse state with something for everyone. Decide if you’re more interested in living somewhere more rural or urban. If you’re living in a major city, living in the city center and its suburbs can make a big difference in home prices.

» FIND: Most Affordable Places to Live In Texas

Step 3: Find a great real estate agent in Texas

A real estate agent can be a great asset throughout each step of the home buying process. They’re there to help make sure your home-buying process is as smooth as possible, as well as make sure you’re getting a home that fulfills your needs.

Make sure your real estate agent has experience in your price range and neighborhood of choice, as well as high ratings and reviews online from happy clients.

» FIND: Top Real Estate Agents in Texas (January 2022 Rankings)

Step 4: Get pre-approved for a mortgage

For some, getting pre-approved for a mortgage is the most stressful part of the home-buying process, but it doesn’t have to be. Getting pre-approved for a mortgage can help you write stronger offers for resale homes and speed up the process for purchasing a new build.

Need help navigating the mortgage process for the first time? You can fill out the form below to be instantly matched with a licensed lender who can guide you through the process.

Step 5: Start house hunting in Texas

Before getting on the market, make a list of your must-have versus nice-to-have features in a home. Then, research how competitive your area of choice is and determine if you can find what you’d like there, or if you’ll need to branch out a little.

Step 6: Make offers

Once you’ve identified a house you like, make an offer as quickly as possible. Resale homes can be very competitive in Texas, with a single home having up to 30 offers at once in popular major metro neighborhoods. Work with a real estate agent to learn how to write a strong offer letter.

Step 7: Inspections and appraisals

Inspections can be one of the most important steps in the buying process! You don’t want to get into your new home and realize there's a major issue with the home. Thankfully, inspections and appraisals are required steps in the buying process.

Step 8: Final walkthrough and closing

Bring a checklist with you to your final walkthrough so you don’t miss giving anything a once over! Be thorough, and bring a trusted friend or family member, plus your real estate agent to make sure you have extra sets of eyes on everything!

» GUIDE: 8 Definitive Steps to Buying a Home in Texas

FAQs for first-time home buyers in Texas

What are the benefits of being a first-time home buyer in Texas?

One key benefit of being a first-time home buyer in Texas is that you have access to programs that previous home buyers do not. Depending on the program, you can receive financial assistance every year (such as with the MCC tax credit) rather than once.

What are some potential downsides to buyer assistance programs?

Depending on your credit score, income, and loan amount, buyer assistance programs may actually have a higher interest rate than a conventional loan.

Compare what you’ll be paying monthly through a buyer assistance program versus a conventional loan. Apply to get pre-approved for a mortgage to see if you can qualify for a conventional loan.

What are major programs for first-time home buyers in Texas?

First-time home buyers in Texas have access to several assistance programs.

Texas Department of Housing and Community Affairs (TDHCA), Texas State Affordable Housing Corporation (TSAHC) and Southeast Texas Housing Finance Corporation (SETH FC) offer comprehensive assistance with mortgage, down payments, and closing costs.

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