Before buying a home in Texas, you'll want to take the time to determine what you can afford, where your ideal neighborhood might be, what features you need or want in a house, and what legal and practical procedures you'll need to follow. With proper preparation, buying a home in Texas can be a great experience.
Are You Ready to Buy a Home in Texas?
The state of Texas draws in home seekers from near and far; often topping the charts as a state to relocate to. People are attracted by its vibrant cities, open spaces, relatively low cost of living, and amazing food and culture. No wonder the median home price tends to run high, between $300,000 and nearly $600,000.
Unfortunately, these prices can make purchasing a home a challenge financially and otherwise. You might also find yourself in bidding wars (multiple-offer situations) that drive prices up, in areas where inventory is low but buyer demand and interest is high.
Start by researching your local market (as you're doing here), visiting homes to get a sense of what's available in your price range (allowing for possible bidding wars that take the selling price way over the list price), and improving your personal financial situation.
Have You Saved Up Enough for a Down Payment?
Traditionally, home buyers put down up to 20% of the purchase price on a home. Lenders like to see that much (and are delighted to see more), because it reduces their risk if you stop making your monthly payments or otherwise default and they then have to foreclose.
You've probably been setting money aside for a down payment already, but now is the time to ratchet that process up, and to avoid making any major new purchases (particularly on credit). Texas also offers programs to assist with down payments or first-time home purchases.
Will You Need a Loan for the Purchase of Your Texas Property?
Assuming you'll need to take out a home loan (a mortgage), be sure to explore the array of options, including government-backed options. Also check on your credit report, which will be one of the first things a bank or other institutional lender looks at, to see whether you're a major risk. You can view your report for free through annualcreditreport.com). The next important step is to correct any mistakes you find there.
Next, consider consulting with a mortgage broker to see what price range of houses you'll qualify to borrow money for. The broker can also help you obtain mortgage preapproval, which can be crucial to have if and when you're competing with other would-be buyers. You'll probably need to pay the broker a commission, in the 1% to 2% range, depending on the loan amount and other factors.
Particularly if money is tight, there's no shame in deciding that you'll want to keep renting for now. Another factor is how settled your life is. As a broad rule, the upfront costs make buying a house financially sub-optimal unless you plan to stay in it at least five years. If you'd like to be able to pick up and move sometime, whether for schooling, a new relationship, or a job, now might not be the time.
If you are ready to buy, though, you'll likely want to check in with prospective real estate agents, as described further below.
Where in Texas Do You Want to Buy?
Perhaps you've already been offered a job in Houston or El Paso, or identified Austin as the place that best matches your interests. If not, or if you're ready to narrow down neighborhoods of interest, a number of resources will help you, ranging from doing simple online searches such as "Is X a good place to live?" to sites such as bestplaces.
Before getting overwhelmed with all the data, it's worth creating a list of factors most important to you personally, such as:
- quality schools and universities
- gourmet or ethnic restaurants or groceries
- proximity to nature and culture
- excellent medical care
- coastal, inland, or border location
- low crime levels, and
- thriving arts or crafts scene.
Many of these factors will increase your house's long-term value, too, thus making it a sound investment.
Working With a Real Estate Agent in Texas
A good agent should be familiar with local market conditions and prices so as to help you find a home that meets your budget and needs. Your agent will help you every step of the way, from preparing your written offer to negotiating with the seller on price and other key terms to coordinating the escrow process and closing. Your real estate agent should also help you locate other professionals to assist you in the home-buying process, including mortgage brokers and home inspectors.
Luckily, working with a real estate agent might not cost you anything. Traditionally, the seller pays the entire real estate commission (around 5% to 6% of the house sale price, split between the seller’s agent and yours). While recent lawsuits and court settlements might change this standard commission model, no radical change has yet occurred.
Personal referrals are usually the best way to select a real estate agent. You can also search for licensed agents on the Texas Real Estate Commission’s website. Online resources such as Zillow can also be helpful, in that they offer customer reviews of agents.
Be sure the agent you choose has plenty of experience and an excellent reputation and references.
What Texas Sellers Must Disclose to You About the Property
State law requires sellers of real estate to make a number of disclosures regarding the condition of the property, using the Texas Real Estate Commission's disclosure notice. This is important for you, since just looking at a property might not be enough to tell you what problems its owner encountered with it while living there.
The form requires the seller to list various features and types of equipment contained in the home and to state whether any known defects exist. They can reply to numerous questions about home features with "Yes," "No," or "Unknown." Where defects are present, they are asked to provide details and explanations. See Considerations Before Selling a House in Texas for details on seller disclosures.
In addition to state-required disclosures, sellers of houses built before 1978 must comply with federal Title X disclosures regarding lead-based paint and hazards. See the lead disclosure section of the EPA’s website for details.
Importance of Getting a Home Inspection in Texas
Buyers should not rely solely on the seller's disclosures. Sellers need divulge only what they know, and that might not extend to hidden parts of the house. Plus, homeowners often become blind to home defects, having lived with them for so long. It's wise to hire an independent home inspector and make your purchase offer contingent upon being satisfied with the resulting inspection report.
The report should cover issues like:
- termites and other pests
- soil settlement, drainage, or erosion issues
- noise and odor problems
- conditions that could lead to mold
- foundation and structural integrity, and
- the condition of the heating and cooling systems, electrical, plumbing, walls, drainage, basement, and flooring.
Pay particular attention to issues that are relevant to common issues found in Texas. For example, a failing HVAC system (a common finding in Texas home inspections) is not what you want to see when heading into a scorching summer.
After receiving the report, you can either negotiate with the seller over repair needs (almost every house has some) or cancel the sale altogether, if you're within the "due diligence" period before escrow closes.
If you're in such a tight market that you're tempted to waive (go without) the inspection contingency so as to make your offer stand out, do what you can to protect your interests in other ways. For example, you might bring a contractor or friend with relevant knowledge and skills to your house visits, so you'll have some idea of what you're getting yourself into. Some home sellers also commission their own inspection report before putting the house on the market, but they don't always choose the most nitpicky inspector out there, so research that inspector's reputation before relying too heavily on the results.
Real Estate Purchase Agreements in Texas
A real estate contract must be in writing and signed by both parties (buyers and sellers). It must contain an offer to sell or purchase, an acceptance of the offer, the sale price, and an adequate description of the property. Texas real estate agents must use a real estate contract form approved by the Texas Real Estate Commission (TREC).
Title Issues in Texas
Your loan mortgage company will likely require you to purchase title insurance in connection. Its purpose is to protect your title to the property against adverse claims by third parties or any clouds on the title missed by the preliminary title search (done before the policy is issued).
The title company will search public records and other sources for any liens, easements (such as the utility company’s right to access part of the property), or other encumbrances or restrictions that could affect your ownership or use of the property. If the title search locates problems, insist that the seller correct these as a condition to closing.
Working With a Lawyer in Texas
Unlike some states, Texas does not require that buyers involve a lawyer in the house-buying transaction. Even if it’s not required, you might decide to engage a lawyer at some point in the process—for example, if you are buying property in a planned unit development with extensive CC&Rs that you need help reviewing, or if you are purchasing a house jointly with others and need help structuring your co-buyer agreement. Or, you might want a lawyer’s help if disputes develop during escrow or the house closing.