First-time homebuyer programs in Texas

First-time homebuyer assistance in Texas

First-time homebuyers can find a mortgage lender through The Texas Homebuyer Program, plus apply to receive a 0% interest second loan to help you cover the upfront costs of buying a home. You only have to pay it back when you sell, refinance or pay off your mortgage.

The Texas Homebuyer Program doesn’t actually grant loans and assistance directly. Instead, you’ll work with one of the department’s participating mortgage lenders to secure approval for a loan as well as access to down payment and closing cost assistance and a federal tax credit.

My First Texas Home

The My First Texas Home loan program is open to first-time homebuyers and qualified veterans. Loan types available include FHA, VA and USDA home loans. Alongside your low-interest, 30-year mortgage, you’ll get a second loan to help with your down payment and closing costs.

That second loan has a 0% interest rate and will be worth between 2% and 5% of your mortgage, depending on your needs.

To qualify, you’ll need to have a minimum credit score of 620 and meet income and purchase price limits.

More: How much house can I afford calculator

Texas Mortgage Credit Certificate Program

The Texas Homebuyer Program also offers a Mortgage Credit Certificate (MCC), which is a dollar-for-dollar reduction of the amount you owe on your federal income taxes. The reduction will be a percentage of the interest you pay on your mortgage.

You can use the MCC in combination with your My First Texas Home Loan or as a stand-alone benefit. However, even if you’re not using the other program, you will still have to meet income and purchase price limits to get the credit. It’s also limited to first-time homebuyers and veterans.

There is no minimum credit score required for the stand-alone MCC option, however, you'll want to act fast as funds are limited.

More: Best mortgage lenders for first-time homebuyers

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How to qualify for down payment assistance in Texas

The TDHCA created the Texas Homebuyer Program to help low- to moderate-income people find affordable housing. To that end, you’ll have to fall at or below certain income requirements as well as the organization’s purchase price limits.

More: Get a free credit score and credit monitoring from Credit Sesame.

Nationwide first-time homebuyer programs

To qualify for a “conventional” mortgage secured through the private market, you’ll often need a minimum credit score of about 620 and a down payment of at least 5% of the total home price. And if you’re offering anything under 20% for the down payment, you’ll have to pay extra for private mortgage insurance.

That’s the most common route to homeownership, but the federal government offers a number of nonconventional mortgages that may be better suited to first-time buyers.

FHA loans

The Federal Housing Administration (FHA) is a division of the Department of Housing and Urban Development. In 1934, the government introduced FHA loans to encourage homeownership across the country.

Compared to conventional mortgages, the terms of an FHA mortgage are less strict. You’ll only need a minimum credit score of 580, but if you have enough money for a larger deposit, your score could be as low as 500. The minimum down payment with an FHA loan is 3.5%, but if it’s less than 10%, you’ll have to pay a mortgage insurance premium (MIP) as well.

These loans put the dream of homeownership within reach for more Americans, but you do have to keep an eye on the fees involved because they tend to add up quickly.

More: FHA loan requirements

VA loans

In 1944, Congress passed an act to reward eligible veterans with cheaper and easier home loans.

The U.S. Department of Veterans Affairs (VA) will guarantee mortgages issued to active service members, veterans and some surviving military spouses. These loans don’t require a down payment or mortgage insurance; however, borrowers will have to pay a funding fee. At time of writing, funding fees are between 1.4% and 2.3% for first-time users.

USDA loans

The United States Department of Agriculture can guarantee loans for rural and suburban homeowners. USDA loans don’t require a down payment or private mortgage insurance.

As with VA loans, you’ll have to pay an upfront fee. Here, it amounts to 1% of the loan amount and an annual fee of 0.35%. Note that these costs are generally more affordable than paying for mortgage insurance.

Also keep in mind that these loans are specifically for lower-income households. You won’t be able to take out a USDA loan if your household earns too much.

The current income limits in most parts of the U.S. are $86,850 for one- to four-member households and $114,650 for five- to eight-member households, but the thresholds may be higher if you live in a county with a steeper-than-average cost of living.

You can find out whether your household qualifies through the USDA’s website.

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Next steps for first-time homebuyers

Whichever mortgage option you choose, your first steps will probably look the same.

Find out where your credit stands. You can use Credit Sesame to get a free credit check, and if your score needs a little boost, Self credit repair can improve your standing.

Next, you’ll need to gather several documents to show proof of funds and stable income.

Once you have everything you need, getting pre-approved for a mortgage is a logical next step.