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August 18, 2023 | homebuying

Buying a Home in Texas: What You Need to Know

Erin Osterhaus

Finance Writer

Texas is a popular destination for many Americans looking for a new place to live. According to the U.S. Census Bureau, between 2000 and 2022 the Lone Star State gained over 9 million new residents and recently joined California as only the second state in the Union to be home to more than 30 million people.

Whether you’ve lived here since you were a kid or you just moved to Texas, there are so many reasons to love living here, including a lower cost of living, no state income tax, great schools, and a booming job market. If you’re becoming a homeowner for the first time, or even if you’re a seasoned real estate pro, there are a few things you should know about buying a house in Texas.

Texas Property Taxes

One of the perks of living and working in Texas is that there is no state income tax. It makes doing your taxes every year a little bit faster and easier, but it also means that local Texas governments have to collect taxes in other ways. To pay for public services like roads, libraries, police and firemen, emergency services, parks and public schools, the local governments collect revenue via property taxes, which is why Texas property taxes are among the highest in the U.S.

They’re High, But How High?

With an effective average tax rate of about 1.8 percent, Texas ranks as the state with the seventh highest property tax rate. Although home values are slightly less than the national average, most Texas homeowners will pay an average of $3,000 per year in property taxes.

In the Austin area, however, property tax rates often go above the state average. Travis County sets a county-wide property tax rate, which is .35 percent, then the city and school districts add their rates on top of that. In Austin, the city rate is .44 percent, while the school district rate is 1.19 percent for a total property tax rate of 1.98 percent in Austin. Williamson county has an even higher average tax rate at 2.01 percent, while Hays county is slightly lower at 1.97 percent.

You Can Lower What You Owe

Although Texas might have relatively high property taxes, the homestead act allows home owners to lower their property tax bill by applying for a homestead exemption. To qualify, you must:

  • Live in the house the majority of the time.
  • Move into the home within 60 days of purchase.
  • Have only one primary residence at a time.

By applying for and receiving the homestead exemption, school districts must provide a $40,000 exemption on the assessed value of your home. For example, if your home is worth $400,000, you would only have to pay taxes on $360,000 of its value.

There is an additional $10,000 exemption available for homeowners over the age of 65 or disabled, as well as partial exemptions for disabled veterans or their surviving spouse, and a total property tax exemption for surviving spouses of first responders killed in the line of duty.

Texas Mortgage Laws

Yet another unique facet of home buying in Texas is its rather strict home equity and cash-out refinancing regulations. While one of the advantages of buying a home is being able to use your home’s equity to fund your financial goals, in Texas there are certain requirements you must meet in order to unlock that equity. So, if you’re looking to buy a home expressly to use its equity—or even if you’re thinking of doing so in a few years’ time—there are some laws you need to be aware of.

Texas a(6) Laws

Until 1997, home equity loans were not legal in Texas at all. However, in that same year, voters approved a provision passed by the Texas Legislature to allow home equity loans, but with certain restrictions. The rules surrounding home equity loans are now codified in the Texas Constitution, Section 50a(6). For this reason, home equity loan restrictions are commonly just referred to as Texas a(6) laws. Here are just a few of those regulations to keep in mind:

  • You can't borrow more than 80% of the equity you have built in your home.
  • You can only have one equity loan on your home at a time.
  • You can only take out one home equity loan per year on your primary residence—even after you’ve paid off the first one.
  • You can’t do a cash-out refinance within 12 months of purchasing the primary residence.

Texas is the only state with regulations limiting home equity borrowing, and while they might seem overly restrictive, they’re there to protect you. In fact, some argue these restrictions were a primary reason that homeowners in Texas did not experience underwater mortgages at the same high rates as other states during the housing crisis of the Great Recession.

As a note, remember that this is not an exhaustive list of all the 50a(6) rules. To learn more about all of the provisions in this section and how they apply to you, you should speak to a knowledgeable mortgage lender in Texas. Amplify Credit Union has served central Texas for over fifty years, and we’re here to give you all the information you need to make a strong financial decision.

Texas Homebuying Programs

You’ve likely heard of federal level home buying assistance programs, such as FHA Loans and VA Loans. If you’re looking to buy a home in Texas, the state also has several unique opportunities for home buyers.

Texas Department of Housing and Community Affairs (TDHCA)

The TDHCA offers three mortgage programs:

  • My First Texas Home: First-time homebuyers (or those who haven’t owned a home in the past 3 years), as well as veterans in Texas, can take advantage of this program. With low-interest, fixed-rate mortgage options and down payment assistance available state-wide, the program is open to potential buyers who have at least a 620 credit score, meet income limits, and are approved through a Texas Homebuyer Program lender.
  • My Choice Texas Home: Repeat homebuyers can also take advantage of some of the same benefits that first-time home buyers enjoy with My First Texas Home. Similar to that program, to be eligible for My Choice Texas Home, you must have a minimum credit score of 620, meet income limits, and be approved through a program-approved lender.
  • Texas Mortgage Credit Certificate Program: The Texas MCC Program is available to first-time home buyers and veterans. Unlike the other two programs mentioned, this one doesn’t involve financing, but instead entitles buyers to a dollar-for-dollar reduction on their federal tax liability.

The TDHCA also offers other programs like the Texas Homebuyer U and the Texas Statewide Homebuyer Education Program, both of which are designed to give home buyers the resources and knowledge they need to successfully purchase a home in the state.

Veterans Land Board

Texas veterans and military members can take advantage of the special loan offerings through the Veterans Land Board.

  • VLB Veterans Housing Assistance Program: Texas veterans may qualify for mortgages with competitive loan interest rates and little to no money required for a down payment. Veterans with a VA service-connected disability rating of 30% or more can qualify for an even greater discount rate.
  • VLB Veterans Land Loan Program: Similarly, the Land Loan Program allows Texas veterans and military members to borrow money to purchase land. Some benefits of the program include special interest rates and a low minimum down payment of only 5%.

The Land Board also has additional programs like home improvement loans and Servicemembers Civil Relief Assistance. You can visit their website for more information.

Other Texas Programs

There may be additional opportunities in the area where you want to purchase your home. Often, cities or counties offer their own programs with advantages for first-time buyers, veterans, and more.

Texas Mortgages Are Unique

Every state has its own unique mortgage laws, as well as state-specific home buying programs that may be available to you. There may be additional rules that could apply, depending on your situation. As such, it’s always a good idea to work with a mortgage lender with local experience. At Amplify Credit Union, we’d love to help! Contact our experienced real estate team today to learn more about Texas’ mortgage lending opportunities.

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