How to Buy a House in Texas: The Process Explained

Buying a home in Texas involves distinct stages, from financial preparation to navigating legal documents. This guide outlines the sequential steps involved in purchasing a home, helping prospective buyers approach the market with confidence.

Preparing Your Finances and Securing Pre-Approval

Buying a home begins with assessing your financial health. Your credit score impacts mortgage eligibility and interest rates. Conventional loans typically require at least 620, while FHA loans may accommodate scores as low as 500 with 10% down, or 580 with 3.5% down. The average credit score for mortgage borrowers in Q2 2024 was 758.

Your debt-to-income (DTI) ratio compares monthly debt payments to gross monthly income. Lenders generally prefer a DTI of 36% or lower, including the mortgage payment. Housing costs should not exceed 28% of gross income, and overall debt payments should remain below 36%. Adhering to these guidelines helps ensure financial stability.

Budgeting for a home purchase includes the down payment and closing costs. The median down payment for all U.S. home buyers is typically around 18% of the purchase price, while first-time buyers often put down 9%. Conventional loans can be secured with as little as 3% down, and VA and USDA loans may allow for zero down payment options.

Closing costs, covering fees for finalizing the home purchase, typically range from 2% to 5% of the home’s purchase price in Texas, with 3% as a common estimate. These costs include loan origination, appraisal, title insurance, and recording fees. Buyers also prepay for homeowner’s insurance and establish an escrow account for property taxes.

Securing mortgage pre-approval is a step before searching for a home, providing a clear understanding of your borrowing capacity. Unlike pre-qualification, pre-approval involves a comprehensive review of your credit history, income, assets, and debts by a lender. This process results in a pre-approval letter, a conditional commitment from the lender for a specific loan amount.

A pre-approval letter demonstrates to sellers that you are a serious buyer, advantageous in competitive markets. Lenders typically require documentation like recent pay stubs, W-2 forms, tax returns, bank statements, and investment account statements. You also need government-issued identification and your Social Security card. Pre-approval letters are valid for 45 to 90 days, so obtain one when ready to search.

Finding Your Home and Making an Offer

With finances in order and pre-approval secured, the next phase is finding a property. Engaging a real estate agent is recommended for guidance throughout the search and negotiation. A buyer’s agent helps navigate local market conditions, identify properties within your budget, and advocate on your behalf. They possess expertise in Texas real estate transactions.

Home searching involves exploring online listings, attending open houses, and scheduling private showings. These allow you to explore neighborhoods and property types within your budget. Your agent will filter options to present homes meeting your criteria, saving time.

Once you find a home, your agent will help prepare a formal offer. A typical Texas real estate contract includes key terms: sales price, earnest money amount, option period length, and proposed closing date. Contingencies for financing or a satisfactory appraisal are also standard, protecting your interests.

Earnest money is a deposit demonstrating serious intent to purchase, typically 1% to 3% of the home’s price. This amount is held in escrow and credited towards your down payment or closing costs. The option period, often 5 to 7 days, allows the buyer to terminate the contract for any reason. To secure this, the buyer pays a non-refundable option fee.

Submitting an offer involves presenting these terms to the seller, often with your pre-approval letter. Negotiation is common, with buyer and seller exchanging counter-offers on price, repairs, or other conditions. Your agent will advise on negotiation tactics, such as requesting price adjustments or seller contributions to closing costs. Once accepted, the contract is executed, moving the transaction to property evaluation and loan finalization.

Navigating Inspections, Appraisals, and Loan Approval

After an offer is accepted, steps occur to evaluate the property and secure loan approval. A professional home inspection, conducted during the option period, assesses the home’s major systems: foundation, roofing, electrical, and plumbing. A qualified inspector identifies defects, providing a detailed report.

Upon receiving the inspection report, you can negotiate with the seller for repairs, a credit, or a price reduction. If significant issues are uncovered and no agreement is reached, you may terminate the contract during the option period, retaining earnest money but forfeiting the option fee. The buyer usually pays the home inspection fee, ranging from $300 to $500, varying by property size and location.

Simultaneously, an appraisal is conducted, typically required by your lender. Its purpose is to assess the home’s fair market value to ensure it supports the loan amount. An appraiser evaluates the property’s features, condition, and comparable home sales. If the appraisal is lower than the sales price, it impacts the loan amount. Negotiations may adjust the sales price, or the buyer may cover the difference.

After appraisal and inspection, the loan moves into underwriting. The lender reviews all documentation submitted during pre-approval, verifying employment, income, assets, and debts. The underwriter also considers the appraisal report to ensure the property meets requirements. This is the lender’s final verification of your eligibility and the property’s suitability.

A title company performs a thorough title search. This search examines public records to confirm the seller’s legal right to transfer ownership and identify any liens or claims against the property. The title company ensures a clear title can be conveyed at closing, protecting against future ownership disputes. Any issues discovered must be resolved before closing.

Completing the Purchase: The Closing

As the home purchase approaches its final stage, the final walkthrough is conducted 24 to 48 hours before closing. This allows you to inspect the property one last time to ensure it is in the agreed-upon condition, all negotiated repairs are completed, and no new damage has occurred. It confirms the home is ready for transfer of ownership.

The closing appointment, or closing table, is where legal property ownership transfers. Attendees typically include the buyer, seller, their real estate agents, and a closing agent from the title company. The closing agent facilitates signing all necessary documents and ensures financial transactions are executed. This meeting culminates the home-buying process.

At closing, you will sign legal and financial documents. These include the promissory note, your promise to repay the mortgage, and the deed of trust, which secures the note with the property as collateral. You will also review and sign the Closing Disclosure, a standardized form detailing the transaction’s financial aspects, including loan terms, fees, and credits. The deed, which legally transfers ownership, is also signed.

Funds for the down payment and remaining closing costs are typically transferred to the title company via wire transfer before or at closing. The title company disburses these funds to the appropriate parties: the seller, real estate agents, and other service providers. Once documents are signed and funds transferred, the loan is funded.

The property becomes yours once the loan is funded and the deed recorded with the county clerk’s office. Keys are typically exchanged after funding is confirmed, allowing you to take possession. This final step marks the completion of your home purchase, transitioning from financial preparation to ownership.