Homebuying in Texas: 3 Options for Down Payment Assistance

For the seventh year in a row, Texas has become the home for more than 500,000 new residents, prompted by a bustling job market, with oil and gas setting the stage for Texas as a powerhouse. This family-friendly state caters to the needs of all; whether you love the outdoors and want to horseback ride the ranches of Dallas, or you crave the Texas beaches in Galveston or South Padre Island, are deep into the arts (Austin) or are obsessed with food (Houston) — there’s something for every taste.

The cost of living and home prices in Texas are also cheaper when compared to states like California and New York. Tax incentives make the Lone Star State appealing, and with seven states in the U.S. without personal state income tax, Texas is a great  place to start owning a home and make the American Dream a reality.

But access to a down payment can pose challenges, even more so during unique times — such as a pandemic-stricken economy. An influx of new businesses and residents have people flocking to the Lone Star state, but lack of inventory and soaring home prices have made homebuying in Texas even more difficult. Even while the average sales price of a house rose by almost 20% year-over-year between August 2020 and August 2021, the number of homes available for sale fell by more than 4%, and single-unit residential housing declined in supply from 2.1 to 1.3 months. This supply-and-demand problem means that prices will likely continue to rise, and buyers will have to keep reaching for more purchasing power.

If you want in on the homebuying action, exploring options to save thousands of dollars for your home purchase can mean the difference between buying a house … or continuing to rent.

Although mortgage rates reached historic lows in 2021, the increasing price of homes all over the country has compromised buyers’ purchasing power. But there’s good news! Various programs in Texas offer down payment assistance, and if you know where to look, you’ll be able to figure out whether or not you qualify.

Texas offers several resources for down payment assistance; the key is identifying which option is right for you. We researched and interviewed real estate experts throughout the state and found three down payment assistance options that offer great benefits. Here’s how to take advantage!

What is down payment assistance?

When purchasing a home, it is essential to consider the amount you will contribute toward the down payment.

Down payment assistance (DPA) helps buyers by offering loans or grants to reduce the amount those buyers must save for a down payment. A down payment is typically equal to a percentage of the cost of the home, and the minimum amount varies depending on the type of loan you receive. For example, if a house costs $100,000 and your loan requires a 5% down payment, you must have $5,000 at the time of purchase to put down on that house.

There are a few different types of DPA programs available to Texas buyers, including grants and loans. You do not have to repay the grant option if you follow all program rules. So if you qualify, this may be the way to go! Otherwise, the other options may require repayment, and are defined below.

1. Grants: Gifted money. This money typically comes from state-funded agencies or non-profits and does not have to be repaid.
2. Loans: A second mortgage you take out to cover down payment costs. Some have to be repaid, while others can be forgiven if you follow program rules closely.
   1. Deferred loans: Second mortgages with delayed payments; these are typically repaid when the buyer moves, sells, or refinances the home.
   2. Forgivable loans: Certain conditions must be met for all or part of the loan to be forgiven; if those conditions are not met, the buyer must repay the loan in full when they buy, sell, or refinance.

While there are many down payment assistance options, it is essential to find the best for you. We will discuss three specific programs offered in Texas that can prepare you for homeownership.

How to find down payment assistance

Whether relocating for work or a first-time home purchase, buying a home is not easy, so it’s important to prepare. When beginning the search for DPA programs, the internet is a valuable tool. You can search keywords like “Texas down payment assistance,” which can direct you to local programs. It’s also a good idea to look into a trusted real estate agent, lenders, and other resources that collaborate with buyers looking for DPA.

Most DPA programs tend to be localized and run at the city and county levels, so determining where you would like to live is another factor to consider.

One of the first steps is to speak with a lender. But it is important to work with a lender who knows about DPA; not all lenders can accept or work with DPA.

To find a lender, check with the city and county housing agencies where you would like to live.

For example, if you were interested in moving to Fort Worth, the City of Fort Worth has a department designated to helping first-time homebuyers. In addition to their Homebuyer Assistance Program (HAP), they also offer a list of lenders that work with clients in search of DPA as well as point them to the most appropriate programs.

“You need someone who is familiar,” said  Swapnil Sharma, a top agent in the Dallas-Fort Worth, Texas area, who regularly works with DPA clients.

“When we work with our buyers, we connect them to a lender, and then the lender — who is really well-versed in these programs — will ask them to apply online, which is like a 10-to-15-minute process,” said Sharma.

Sharma and her team have worked with tried-and-tested lenders who are familiar with Texas DPA programs. Working with an experienced real estate agent also guides buyers in making realistic offers on homes based on the market, and agents are great resources when navigating the inspection and closing processes.

When applying for DPA, consider factors like your income, the loan type, the cost of the home, and the amount of funding you’ll need. If you want a lower monthly mortgage payment, then a more significant down payment is usually necessary. The key is allowing your lender to aid in figuring out which DPA option is best for you.

Down payment assistance programs in Texas

Texas Department of Housing & Community Affairs (TDHCA)

Texas homebuyers have options when selecting a down payment assistance program. Texas Department of Housing & Community Affairs (TDHCA) is a government agency that offers statewide affordable housing, home loans, DPA, and closing cost assistance through a network of lenders.

TDHCA grants and loans

TDHCA focuses on grants and loans. They have a range of options, including down payment and closing cost assistance through their Texas Homebuyer Program.

We’ve listed some of the main features of TDHCA programs below.

Eligibility

• Income limits: Between $89,000 and $102,350, depending on county
• Purchase price limits: This varies based upon area and county. Purchase price limits for houses for sale in Austin are between $311,979 and $364,452; cities like Dallas and Fort Worth show purchase price limits of $360,425.
• Minimum credit score: 620
• Cannot combine with a Texas Mortgage Credit Certificate
• Other eligibility requirements might apply

Features

• No first-time homebuyer requirement
• 30-year fixed interest rate mortgage loans
• Down payment assistance and closing cost assistance from between 3% and 5% of the loan amount
• Available statewide via a network of participating lenders
• Buyers can use FHA, VA, USDA, or conventional loans

Texas State Affordable Housing Corporation (TSAHC)

Texas State Affordable Housing Corporation (TSAHC) is a 501(c)(3) organization that provides affordable housing throughout the state of Texas. By partnering with developers and financial institutions, TSAHC builds housing to serve its Texas residents.

In addition, private donations and selling tax-exempt affordable housing have allowed TSAHC to become one of Texas’s largest affordable housing providers, while also serving buyers through down payment assistance. Take the eligibility quiz to see if you qualify.

Eligibility

There are two homebuyer options in the form of either a grant or a three-year deferred forgivable second loan. Both programs offer the same DPA options below.

• Income limits:
  • $111,250: Dallas, Collin, Denton, Ellis, and Rockwall Counties
  • $101,000: Tarrant and Johnson Counties
• Purchase price limits vary. Targeted (economically distressed) areas in popular counties like Austin-Round Rock tend to have income limits up to $138,460, counties like San Antonio and Braunfels have income limits under $112,000.
• Minimum credit score: 620
• Completion of an approved homebuyer education course
• Other requirements may apply

Features

• No first-time homebuyer requirement
• 30-year fixed interest rate mortgage loans
• Down payment assistance up to between 3% and 5% of the loan
• Available statewide via a network of participating lenders
• Can use FHA, VA, USDA, or conventional loans
• The three-year deferred forgivable second loan details:
  • It is a 0% interest second loan that can be used toward the borrower’s closing costs, or down payment, any prepaid items, principal reduction, or related mortgage fees and expenses.
  • The lender funds the loan at closing, and it is forgiven in full after the third year, if the following conditions are met:
    • The borrower has lived in the house as a principal residence for three years
    • The borrower has made on-time payments throughout the three years of the loan
    • The borrower hasn’t sold the house or refinanced the loan
  • If those conditions are not met, the borrower has to repay the loan.

Southeast Texas Housing Finance Corporation (SETH)

Southeast Texas Housing (SETH) supports affordable housing for low- and moderate-income Texans. As the first local housing finance agency, SETH provides loan offerings, and it was also the first to offer homebuyer education.

For more than 40 years, SETH has provided $160 million in down payment assistance and help with closing costs, and it has assisted more than 30,000 Texas homebuyers. Below is a list of features. Check out the SETH website for more information.

Eligibility

• Income limits: $102,350 in Dallas-Fort Worth counties
• Purchase price limits: $484,350
• Minimum credit score: Between 620 and 640
• Completion of an approved homebuyer education course
• Excludes the cities of Grand Prairie and El Paso, and Travis County
• Must be owner-occupied
• Other requirements might apply

Features

• No first-time homebuyer requirement
• 30-year fixed interest rate mortgage loans
• Down payment assistance from between 3% and 7% of the loan
• Available statewide via a network of participating lenders
• Can use FHA, VA, USDA, or conventional loans
• A 3-year forgivable second mortgage option is also available, which allows eligible homebuyers to finance their down payments, closing costs, and home improvements by way of a Community Second Loan. This Community Second loan is completely forgiven after three years if the following conditions are met:
  • The borrower has lived in the house as a principal residence for three years
  • The borrower has made on-time payments throughout the three years of the loan
  • The borrower hasn’t sold the house or refinanced the loan

Closing

Down payment assistance is a great resource that many people do not realize is available. If you are interested in DPA, determine your eligibility using this calculator. Next, find an approved lender, the most crucial step in the process in ensuring that you qualify and all paperwork is in order.

Whichever Texas DPA program you choose, comparing rates and lenders can save you money. A qualified real estate agent who works regularly with down payment assistance in your area is one of your most valuable resources.

Header Image Source: (MJ Tangonan / Unsplash)