How Much Down Payment for a House in Texas?

The pursuit of homeownership is an exciting milestone, but figuring out how much to save for a down payment can confuse many Texans.

With various factors influencing the total amount required, such as location, property type, and personal financial circumstances, it’s easy to feel lost in the maze of real estate jargon and financial planning.

In this blog post, we’ll dive into the heart of the issue by identifying the challenges faced by prospective homeowners in Texas, the nuances of down payment requirements, and the array of resources available to guide you through this crucial decision-making process.

By the end of this comprehensive guide, you’ll know to confidently navigate the Texas real estate market and decide on the optimal down payment for your dream home.

The Median Home Price in Texas is $345,000 as of 2023

In 2023, house prices jumped by 5 – 10%, depending on your market. The median home price in Texas is now $345,000.

What does that equate to in terms of a 20% down payment? $69,000.

But how much does a home buyer need to put down? That depends a lot on your mortgage loan.

How Much Do You Need to Put Down to Buy a House in Texas?

Conventional loans don’t require 20% down. Rather, you need to put 20% down, or you have to pay mortgage insurance.

Mortgage insurance is an additional fee for the bank to take on the loan risk. Most lenders will let a home buyer purchase a house with a conventional mortgage loan with 10% down.

But there are other options, too. VA loans and USDA loans require 0% down. FHA loans require 3.5%.

Purchase Price0% Down3.5% Down10% Down20% Down
$200,000$0$7,000$20,000$40,000
$325,000$0$11,375$32,500$65,000
$500,000$0$17,500$50,000$100,000

You should try to put down as much as possible on your loan. But if the question is how much down payment for a house in Texas you strictly need, that has much more wiggle room.

The answer for most people will be 3.5%. Most first-time buyers use FHA loans. If you go the conventional route, expect to put down 10%. The better your credit score, the more the lender will let you get away with.

Of course, it’s also about affordability. Let’s say you want to buy a $325,000 home, but the bank says you can only afford the mortgage for a $200,000 property. You must make up the $125,000 difference regardless of how much they technically “require” for a down payment.

Low Down Payment Loans

As I mentioned, conventional loans will usually require 10% down. That’s not strictly true, and often it depends on your credit score… for instance, if your credit score isn’t perfect, they’re more likely to require 15% down. But there are low down payment loan products.

FHA Loans

FHA loans are the most popular type of mortgage for first-time home buyers. They’re typically easier to qualify for than a conventional mortgage. The minimum credit score for an FHA loan is 580-and the minimum down payment is 3.5%.

The downside is that FHA loans are easier for borrowers but harder for homes to qualify. An FHA inspection/appraisal process is more rigorous than a conventional loan. In a hot market, sellers don’t like FHA loans because they take longer to close and require more repairs.

VA Loans

VA loans are available to active-duty military members and veterans. They require 0% down and no specific financial or credit-related requirements; the underwriter considers the entire portfolio. VA loans are a great option for a military home buyer.

USDA Loans

USDA loans are available to low- and middle-income buyers in rural areas. They require 0% down but have stricter income limits than FHA or VA loans. Specifically, you can’t make too much, or you won’t be able to get a USDA loan. Further, USDA loans are only available for properties that are deemed rural.

Down Payment Assistance Programs

Down payment assistance programs and grants are available, especially for careers such as first responders or teachers. You can look into down payment assistance programs locally, but be aware that many are tapped out.

Those not tapped out may take a while to process your application. If you apply for a payment assistance program, do so early.

Borrowing Money for a Down Payment

You can’t borrow money for a down payment. But you can be gifted money for a down payment from your family. Your family will likely have to write a letter stating that the money is a gift, not a loan.

Investment Loans and Jumbo Loans

Note that high-risk real estate loans will require larger down payments. Jumbo loans, for instance, usually require around 10%. If you’re buying an investment property, you must put at least 30% down.

And mortgage rates are generally higher for these types of loans as well; a first-time homebuyer may get a rate of 6% now, but an investment property will hover closer to 8%.

Should You Wait Until You Have 20%?

A lot of borrowers are getting priced out of the market. They’ll never have a 20% down payment because property values increase faster than they can save. This is especially true for a first-time homebuyer.

You generally have to pay private mortgage insurance when you purchase a house with less than 20% down. But here’s the catch: once you have 20% equity, you can refinance and eliminate the PMI.

So, let’s say you buy a $200,000 house with 15% down in 2023 = $30,000. You have $30,000 of equity on a $200,000 house.

By 2026, that house has increased in value to $280,000. That may seem crazy, but in Dallas and Fort Worth, properties did increase 20% year-over-year.

Now you have $110,000 in equity in your house-39%. You can refinance and remove your private mortgage insurance.

The equity that PMI is based on doesn’t relate to the amount that you pay. It relates to the difference between your mortgage loan and your property values. You’ve made $80,000 in additional equity… but your loan is still $170,000.

That doesn’t mean that you should always jump into the market without a lot of money at hand. The more money you have, the more bargaining power you have. A higher down payment reduces your monthly payments and makes it easier to qualify for a mortgage.

Still, it’s not strictly necessary to purchase a house.

Down Payments vs. Other Investments

We’ve been, in investing terms, in a “bull market” for a while.

Some traditional wisdom has stated that you should always put as little down as possible.

Up until recently, mortgage interest rates were 3%. The stock market was averaging 8%. So, it made sense to put as little down on a house as possible and put the rest of the money in the market-you’re losing 3% in interest but gaining 8%.

We’re inverted now. We are entering a bear market. Interest rates are approaching 6%, and the stock market is decreasing. So, that’s not necessarily true. You must consider the relationship between the mortgage interest rate and your investment interest rate.

That doesn’t mean that you need to put 20% down. But it does mean that the conventional wisdom of putting as little down as possible might not be strictly true, especially as the mortgage interest rate continues to rise.

If you have investments that will make you more than 6% in mortgage interest, then it’s probably in your best interest to put less down. But for most people, it’s currently in your best interest to put as much down as you safely can while still having a buffer for other expenses.

Still, this introduces something else you should consider when calculating your down payment—opportunity cost. You find the perfect property, but it needs much work. You should put less down because you will need more for repairs.

Conversely, let’s say you find the perfect property, and it needs no work at all. You might want to put more down because you know you won’t need to spend much on repairs.

It’s Not Just the Down Payment: What About Closing Costs?

Don’t forget about the closing cost. You need to pay more than just the down payment. If you’re trying to put 20% down, you should have about 30% available. If you’re trying to put 3.5% down, have a full 10%.

Closing costs are the fees associated with your loan, paid at closing. In Texas, these fees can range from 2% to 5% of the total loan amount.

A $325,000 loan would be between $6,500 and $16,250.

You can ask the seller to pay some or all of your closing costs, but they’re not required to do so, and in a hot market like this, you’re probably out of luck.

You can also roll your closing costs into the loan itself. But know that this will increase your monthly payments and the amount of interest you’ll pay over the life of the loan.

Apart from that, you have moving costs, repair costs, furniture costs, appliance costs, etc—there’s a lot to pay for when you move.

Still, you might not need to put that much down on a down payment.

Conclusion: You Don’t Need As Much Down As You Think

The market and prices are accelerating so fast that you’re better off trying to get into the market now.

Think about it this way.

You’re a Texas homebuyer. You want to buy a $200,000 new home with 20% down-$40,000. You start to save now.

By 2023, you realize that you’ve saved $40,000. But now, that $200,000 new home is priced at $250,000. You must save another $10,000 to put 20% down—$50,000.

Now it’s 2024, and you’ve saved your full $50,000. You hit up Zillow only to see that your $250,000 new home is now priced at $300,000. You need to save another $10,000.

And so forth.

Now, reverse that.

In 2023, you bite the bullet. You buy your $250,000 house with $40,000 (16%) down. You must pay PMI because you’re not paying the full 20%. So, you’re paying a little more every month.

But in 2024, you look up your house and discover you’ve made $50,000 in equity.

The numbers aren’t always going to be that extreme. Prices aren’t going to keep surging the way they have been; they’re slowing down. But fundamentally, the reality is the same. You may never save money at a pace that keeps housing affordable. You could end up priced out of the real estate market entirely.

FAQs

How much do you need for a down payment in Texas?

You will need at least 3.5% of the home’s purchase price. For a $325,000 loan, that would be $11,375. However, there are 0% down options—such as VA or USDA loans.

What percentage do you need to put down on a house in Texas?

It depends on the type of loan you’re getting. You’ll likely need to put down at least 10% for conventional loans. But FHA loans only require 3.5% of the total purchase price.

How much money should I save to buy a house in Texas?

It depends on the price of the home you’re hoping to buy. For a $325,000 loan, you’ll need about $11,375—or 3.5% of the purchase price. For a $200,000 loan, you’ll need around $7,000.

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