If you’ve been through the home buying process, you’ve most likely heard that you need to save at least 20% of a home’s purchase price to put towards its down payment. However, if you’re a first-time homebuyer, you’re probably wondering whether this number is accurate or even reasonable for someone to save up for a house in Texas.
It is often recommended that potential home buyers save 20% for the down payment of a home, but you can purchase a house in Texas with as little as 3.5% to no money down. This is because loan programs such as the FHA only require homebuyers to put down a minimum of 3.5%.
In the following sections, we will discuss what down payments are and how much you should consider saving if you are looking to purchase a home in Texas.
What is a Down Payment?
A downpayment is the amount of money you give to a home seller that covers a specific percentage of the total home purchase price. When applying for a home loan, lenders require that you put forward a certain amount of money towards the purchase of your potential home.
For instance, if you intend to purchase a $350,000 single-family home in Dallas, the following will be your down payment amount:
| Percentage Down | Purchase Price | Down Payment Amount |
| 3.5% | $200,000 | $7,000 |
| 5% | $200,000 | $10,000 |
| 10% | $200,000 | $20,000 |
Your down payment shows your lender that you are committed to the purchase of the home and will be able to afford your monthly mortgage payments. Also, your downpayment may determine your interest rate and help you eliminate paying for mortgage insurance.
Down Payment Requirements & Mortgage Programs
When getting a home loan for a home in Texas, several mortgage lenders require you to have a certain amount of down payment. The minimum down payment you are required to make will differ from one mortgage program to the other. On average, first-time homebuyers make a down payment of 6% or less.
FHA Loan
The FHA loan is a loan that is issued by an FHA-approved lender, insured by the Federal Housing Administration. FHA loans allow you to pay as low as 3.5 percent down, and that is why it is the go-to for most first-time homebuyers. It allows you to get into your dream home with less money saved up.
In addition, the lower your credit score, the more likely an FHA loan is your best mortgage option. This is because if you want to put down 3.5% for an FHA loan, you only need a credit score of at least 580. But, if you have a credit score lower than 580, you’ll need to put down 10%. Also, you will need to pay an upfront mortgage insurance of around 1.75%.
Conventional Loan
With a conventional loan, the minimum you can put down is 5%, but if you or someone else on the loan is a first-time homebuyer, you can go as low as 3%. So, even if you aren’t a first-time homebuyer, but your partner or roommate is, you can use it to your advantage.
Like most home loan programs, the conventional loan may require you to pay mortgage insurance. If you’re putting down less than 20%, you’re going to be required to carry monthly mortgage insurance.
Your mortgage insurance amount will be highly dependent on your credit score and how risky your loan is. A higher down payment and better credit score will lower your monthly mortgage insurance payment.
VA Loan
The VA loan is reserved for veterans, service members, and their families. Not only is it a true zero-percent down payment home loan, but it also offers a lower interest rate. VA loans are issued by VA-approved lenders and approved by the US Department of Veteran Affairs.
One of the best aspects of the VA Loan is that it comes with no private mortgage insurance but includes a funding fee of 2.15%, which is rolled into the overall loan. Most importantly, there is no minimum credit score, and you don’t need to be a first-time homebuyer to qualify.
USDA Loan
Just like the VA loan, the USDA loan doesn’t require you to put down any money to own your home. It is insured by the US Department of Agriculture and targets home buyers looking to buy a home in rural areas.
The USDA loan doesn’t require a down payment, but your potential home must be in the rural areas of Texas to qualify for one. You’ll also need to pay an upfront mortgage insurance of around 2%. Also, like the VA loan, there is no minimum credit score requirement.
Final Thoughts
The bottom line is that you do not need a considerable down payment or even 20% down to buy your dream home in Texas. Several loan programs can offer you the option of putting 0% down.
The best way to find out how much of a down payment or loan you can afford is to speak to an experienced local lender.
