One of the primary hurdles in buying a first home is saving enough money for a down payment. Many people assume they need to put down 20 percent of the purchase price, but that is not always the case. Read on to determine how much down payment you need for a house in Texas and what assistance programs you might be eligible for.
How much money should you put down on your first home?
There are several factors that determine how much money you should put down on your first home. Generally, the more money you put down up front, the less you will pay in interest over the life of your mortgage loan. So, if you have plenty of money in your savings account, you might want to put down 20 percent because it can get you the lowest interest rate and monthly mortgage payments.
However, if you don’t have a significant amount in savings, it’s often better to put less money down and pay for private mortgage insurance (PMI). First-time homebuyers can put as little as 0-3.5 percent down with various loan programs, and a lower down payment allows you to maintain a cushion for home maintenance and any unexpected personal emergencies. Plus, you will likely have the option of eliminating your monthly PMI once you’ve achieved 20 percent equity in the home.
Here are the minimum down payments for various mortgage loans:
- Conventional mortgage loan: First-time homebuyers can put down as little as 3-5 percent, although you will have to pay for private mortgage insurance.
- FHA loan: Borrowers with credit scores of 580 or higher can put down 3.5 percent. For those with credit scores between 500-579, the minimum down payment is 10 percent.
- VA loan: With a VA loan, you can put down as little as zero percent, although you will have to pay a VA funding fee. Veterans, active-duty military members, and surviving spouses of members may be eligible for a VA loan.
- USDA loan: The down payment can be as little as zero percent, although you will have to pay closing costs. Only homes located in designated rural areas are eligible for USDA loans.
You can check how much an estimated down payment would be on the homes in your price range by using a mortgage calculator.
What are some programs that can help with the down payment?
There are a number of programs that can help first-time homebuyers in Texas with down payments and closing costs. Here are a few options:
- My First Texas Home Loan: A loan option for first-time homebuyers and veterans that provides down payment and closing cost assistance of up to five percent of the first lien mortgage amount in the form of a 30-year, low-interest rate mortgage.
In addition to statewide programs, you might also be eligible for city and county programs in your area. Here are a few assistance programs in cities across Texas:
- Austin Homebuyer Down Payment Assistance Program: Offers up to $40,000 in down payment assistance on homes under $280,000 for first-time homebuyers within Austin city limits. Household income must be 80 percent or below the median area income and applicants must complete an approved homebuyer education course.
- Hill Country Home Down Payment Assistance Program: Provides down payment assistance of 4, 5, or 6 percent of the principal balance of the loan in the form of a zero-interest, 10-year forgivable second mortgage. The home must be located in Travis County and applicants must complete a HUD-approved first-time homebuyer education course.
- The Homebuyer Assistance Program: For first-time homebuyers in Houston with a household income at or below 80 percent of the area median income, this program offers a no-interest, forgivable loan secured by a lien.
- Community Services Department Downpayment Assistance Program: Offers down payment assistance of up to $23,800 for income-eligible, first-time homebuyers in Harris County.
- Homeownership Incentive Program (HIP 80): Offers down payment and home cost assistance between $1,000 and $15,000 as a zero percent interest, no payments second loan. This loan will be 100 percent forgiven over a five-year period.
- Homeownership Incentive Program (HIP120): Offers down payment and home cost assistance between $1,000 and $15,000 as a zero percent interest, no payments second loan. This loan will be 75 percent forgiven over a 10-year period, and the other 25 percent will be perpetual.
Discover more tips on buying a home in Texas.
Navigating the path to homeownership can be overwhelming, especially the first time around. Discover more tips from experienced loan officers on the home-buying process in our guide to buying a Texas home.