Written by:
Lindsay Menz – Loan Advisor – (612) 590-4200
Are you thinking about buying a home in Texas and wondering how to lower your down payment? Good news—Texas offers several programs designed to help homebuyers with minimal down payment requirements. Below, we’ll explore federal, state, and local programs that can make homeownership more affordable.
Key Terms to Know
Seller Concessions: This refers to the seller agreeing to cover part or all of the buyer’s closing costs and prepaids. Seller concessions can significantly reduce the amount of money a buyer needs to bring to the closing table.
Closing Costs: These are fees related to the home-buying process, including underwriting fees, appraisal costs, credit report charges, and title fees. Closing costs are paid at closing and may be covered by either the buyer or the seller.
Prepaids: Prepaids include upfront costs like homeowner’s insurance, property taxes, and establishing an escrow account. These are paid in advance to cover future costs associated with the property.
Sample Cost Breakdown
Home Purchase Example
- Purchase Price: $250,000
- Estimated Closing Costs and Prepaids: $6,000
- Down Payment: $7,500
- Total Funds Due at Closing: $13,500
With Seller Concessions
- Loan Amount (after 3% down): $242,500
- Total Cash Due (prepaids + down payment): $13,500
- Less Seller Concessions: -$6,000
- Total Cash Due at Closing: $7,500
In this scenario, seller concessions reduce the buyer’s upfront cash requirements. Buyers often use a combination of savings, retirement funds, tax refunds, or down payment assistance to cover the remaining cash needed.
Federal Loan Programs
VA Loans:
Veterans, active-duty military members, and surviving spouses can benefit from VA loans, which offer zero down payment options. Backed by the U.S. Department of Veterans Affairs, these loans make it easier to purchase a home with minimal cash outlay. Seller concessions can further reduce the amount of cash needed at closing.
USDA Loans:
For buyers looking to live in rural areas of Texas, USDA loans offer 100% financing, meaning no down payment is required. Buyers can also roll their closing costs into the loan, reducing out-of-pocket expenses. USDA loans are available for eligible rural areas, and income limits apply.
Texas State Programs
Texas Down Payment Assistance Programs:
Texas offers a variety of state-sponsored down payment assistance programs to qualified buyers. These programs, like the Texas State Affordable Housing Corporation (TSAHC) provide grants and low-interest loans to help cover down payments and closing costs. Eligible buyers typically need a credit score of at least 620, but requirements may vary.
The Texas State Affordable Housing Corporation (TSAHC) loan program is designed to help low- and moderate-income Texans achieve homeownership. It offers a range of options, including down payment assistance and mortgage credit certificates, aimed at making home buying more affordable. TSAHC focuses on assisting first-time homebuyers, teachers, firefighters, police officers, veterans, and others in public service roles. The program helps buyers who may not have sufficient funds for a down payment or closing costs, providing financial relief and making it easier for them to qualify for a mortgage. It also offers flexible requirements, making homeownership more accessible to those who might otherwise struggle to enter the housing market. You can learn more about that here.
Do You Qualify?
To determine if you qualify for down payment assistance in Texas, aim for a credit score of 620 or higher, check USDA loan eligibility for rural areas, and work with a lender experienced in these programs. Buying a home is a significant financial step, and understanding the available assistance can help you make informed decisions. We are ready to assist you with your homebuying journey, ensuring you understand all your options.