Your Step-by-Step Guide to Buying a Home in Texas

• Texas uses an escrow agent, closing agent, or representative from the title company to complete the real estate transaction.
• As the borrower, your funds, as well as the purchase contract, are held in escrow by a neutral party. They are held until an escrow agent verifies that all parties have completed their roles properly.
• The escrow company will then release all funds to the appropriate parties and the keys to the property are given to the new owner.
• Texas has a few unique environmental requirements that impact inspections, including termite inspections.

Phase 1: Disclosures and Inspections for Buying a Home in Texas

Once you are in contract with a seller, these are the initial steps that need to be completed. In many cases, they can be completed at the same time as the steps in Phase 2.

1. First, an offer will need to be accepted by the current owner. Then a contract is signed and escrow begins.
2. A deposit is placed with the seller’s real estate broker, an escrow agent, or an attorney, but never directly to the seller. Escrow companies are often part of the title company but work as a separate division.
3. When buying a home in Texas, a small sum of money is usually exchanged for an option period, which is about 10 days. During this period, the buyer can back out of the contract for any reason and still recover their escrow deposit. The option period is usually in the hundreds of dollars.
4. You will now have a chance to review the disclosures from the seller. These disclosures outline any know flaws with the property, and often include things like prior improvements or repairs, as well as potential hazards. A seller’s disclosure is provided by the day the contract is signed, and sellers usually want to disclose information upfront to avoid making reductions or offering credits in the future negotiations. Buyers are generally expected to account for the disclosures in their offer.
5. As the buyer, you can now elect to perform inspections as you see fit. There is no inspection contingency when buying a home in Texas. Basically, an option period is used to give buyers a chance to inspect the home as they see fit and walk away from the deal if they wish. You can choose many types of inspections, but they usually include an initial inspection by a general contractor, as well as a termite inspection.
6. Depending on the outcome of the inspections, buyers may choose to ask for repairs, credits on closing costs, or a reduction in the sale price. Sellers can then respond to the requests in three ways: accept the conditions, negotiate a solution, or reject the conditions outright. The process continues until an agreement is reached. At this time, the buyer has the chance to leave the deal without penalty.
7. The buyer can also negotiate for a residential service contract, which is also known as a home warranty. This warranty covers major appliances from failure, and usually lasts about 12 months.

Phase 2: Getting Approved for a Mortgage in Texas

While some borrowers are able to purchase a home without a loan, the vast majority will need to take out a mortgage. This allows you to access a home that would otherwise be unaffordable, but unfortunately the process for getting approved for a loan in Texas can be lengthy. Your lender will need a lot of information, so it’s best to start as soon as possible.

1. To start the process, you will submit a loan application to your lender, which will be completed either directly or through a mortgage broker.
2. The lender will send a Good Faith Estimate, or “GFE,” within three days. This is an explanation of the estimated costs, but the final tally could differ.
3. Before you can make an offer on a home, you must get pre-approved. To complete this process, you will need to send a wide variety of information to your lender. The specifics will vary, but you can expect to bring a few documents, including:
   – Bank statements from several months in the past. This should include all accounts you own.
   – Information on your debt load, including outstanding loans, lines of credit, and other financial liabilities. If you pay rent, include this as well.
   – Two years of tax returns. These will need to be ordered by your lender directly from the IRS using the 4506-T form.
   – Pay stubs and contract information for all of your employers, including both full and part time work.
   – Any information that is material to your financial situation. For example, if you send or receive child support, make sure this information is documented with your lender. This can also include marriage licenses, divorce settlements, property liens, and court judgements. If it impacts how much money you have on a monthly basis, include it.
   – If you have recent credit inquiries, you may need to provide explanations.
   – Information on any large deposits found in your accounts. Large deposits such as gifts are excellent for funding a down payment or closing costs, but lenders will want information on the gift if it is significantly large compared to your income. If the deposit is a gift, your lender may request a “gift letter” from the donor. This letter needs to explain the relationship between the borrower and donor, and should also state that the money is a gift and not a loan. The amount that requires a gift letter will depend on the size of the loan compared to your income. 
   – Finally, you may need to substantiate any of the above information and provide repeat documents. This is a basic measure used by lenders to verify important information such as your income or debt load. Remember that to lenders, anything can happen to your personal finances through the escrow process. They are in the business of reducing risk, so don’t be upset if they ask for repeat or redundant information. This can include updated pay stubs, rent receipts, bank statements, and any other financial disclosures that impact your income. If there are any differences in these documents compared to the previous information, the lender may need to modify or restart the loan application.
4. Once all the documents are collected, the lender will render a decision. Assuming you are approved, they will issue a loan commitment letter. This letter essentially states their intention to fund the mortgage loan once certain conditions are met. These conditions vary, but usually include an appraisal, which will confirm the value of the house. The conditions can also include a clause that there should be no material changes in your financial situation; if changes occur, the lender can repeal the loan commitment.
5. The financing contingency will need to be removed by the buyer. The date for this to occur is defined in the contract.
6. An appraisal will now be ordered by the lender or mortgage broker through a central directory of appraisers. While they will be unable to choose a specific appraiser, they can request a different appraiser if they see fit. If the final appraisal comes in lower than expected, the lender may decline to approve the loan until certain changes are met. These can include changes to the purchase price or the down payment size.
7. The lender will submit a request for title commitment to the title company. The title company then reviews the title for quality, and also checks the property survey. If no survey exists, one will likely need to be completed. If all goes as planned, the title commitment and title insurance is prepared, certifying that the title is ready for sale to the borrower.
8. At this point, homeowners’ insurance will need to be purchased. Homeowners’ insurance protects the financial asset from harm, and proof will need to be delivered to the lender. If the insurance is already provided by an HOA or another association, you can simply submit their documents to the lender.
9. Additional hazard insurance will now need to be purchased in certain circumstances. If the property is in a flood plain or at risk from hurricanes, extra insurance may be required by the lender.

Note: Be Patient with Mortgage Approval
Remember that the mortgage-loan approval process can take a long time to complete. Therefore, it’s best to start as early as possible and gather all the documents you need. During the mortgage application, it’s best to avoid making changes to your financial situation. For example, changing jobs can disrupt your approval, even if you stand to earn more money after the switch. You should also avoid opening lines of credit or financing vehicles until the process is complete. It can seem long and arbitrary, but once it’s complete you’ll be able to purchase the home of your dreams!

Phase 3: Closing the Texas Real Estate Purchase

In Texas, the closing process usually takes a couple of days to a week. This is different than states that require an attorney review, which Texas does not. The transaction is usually completed without the need to have all parties sitting at the same table at the same time.

The closing process in Texas usually includes:

1. Your lender will send the final loan documents to the escrow agent, and the final closing date is scheduled.
2. The closing itself occurs at the office of an escrow agent, closing agent, or title company.
3. The seller usually signs the documents first.
4. The buyer then signs the documents, including any remaining loan documents.
5. You will then pay the remaining funds for the down payments and closing costs to the escrow agent. It can also be delivered to the closing agent or representative from a title company.
6. The deed will be recorded with the appropriate municipality, usually a city or county.
7. Congratulations! Unless there are further conditions, you will now receive your keys and take possession of your new Texas home!
   

Texas Downpayment Assistance (DPA) Programs

While owning a home can bring amazing benefits, saving for a downpayment is difficult. If you meet certain requirements, you may be eligible for downpayment support from a variety of organizations that serve aspiring Texas homebuyers.

Texas Statewide DPA Programs

From El Paso to the Louisiana border, these programs are available to buyers throughout the state…

My First Texas Home
The Texas Department of Housing and Community Affairs has created the Texas Homebuyer Program, which is divided into a few sub-programs. The My First Texas Home program offers first-time buyers access to as much as 5% in purchase support.

My Choice Texas Home
This program, from the same organization, also offers downpayment assistance as high as 5%, but there is no requirement for first-time homeowners.

Homes for Texas Heroes Program
If you work as a police officer, firefighter, teacher, or serve another type of essential community role, you may be eligible for support through this organization.

Major Local Programs for Downpayment Assistance in Texas

5 Star Texas Advantage
Serving southeast Texas, this program can give assistance as high as 5% of the main loan. Under certain conditions the assistance can be a grant that does not need to be repaid.

Austin Downpayment Assistance
The thriving city of Austin is supporting homeownership through a downpayment assistance program that delivers as much as $40,000 in support!

Harris County (Houston)
Buyers in Harris County, which includes the city of Houston, can get support for their home purchase. There are income limits, but buyers can secure as much as $23,000 in certain cases.

Travis County
In Travis County, eligible buyers can get support for their purchase that can reach as high as 6% of the initial purchase price. The assistance comes as a loan but there is no interest and support comes as a ten-year forgivable loan.

Common Requirements for Texas Downpayment Assistance

Each program has different requirements, but most have a restriction on income. They also have limits on purchase price; for example the 5 Star Texas Advantage program is limited to purchases of $492,500 or less.

Many programs also have credit requirements, and some will only be available to first-time buyers. However, if you have not owned in the past three years, you are probably eligible for assistance of some kind.

Want more information about Texas DPA programs? Contact our staff and we’ll help you find the right support so you can finally enjoy the benefits of homeownership!

This document is intended for general information only. Laws will change and processes can be adjusted, so always speak with a qualified professional. This article should not be considered legal, financial, or real-estate advice.

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