Most first-time home buyers assume they need to have the full down payment saved before they can purchase a home. Trying to meet this goal can feel overwhelming and leave potential home buyers stuck in rentals, dealing with the frustration that they could be putting that rent money toward owning a home.
Fortunately, renting and saving the full amount on your own are not the only two options. First-time home buyer programs in Texas can cover part of the down payment and closing costs, lower your annual tax bill, or pair you with a loan that needs little or nothing down. Each program has its own rules, and the right fit depends on your income, credit, and where you want to live. This guide walks through the main state and federal programs available and how they work in practice.
Key Takeaways
- Texas Department of Housing and Community Affairs (TDHCA) offers two main programs, both with fixed, low-interest rate 30-year mortgages and down payment assistance. My First Texas Home is for first-time buyers and qualified veterans, and My Choice Texas Home is for first-time buyers, repeat buyers, and veterans.
- Mortgage credit certificates or MCCs work as an annual tax credit, not down payment assistance and return a percentage of the buyer’s annual mortgage interest payment as a tax credit.
- First-time home buyer does not mean that a prospective buyer has never owned a home. It often means no primary property ownership in the past three years.
- U.S. Department of Agriculture (USDA) loans often mean zero down payment required, but are address and income-restricted.
What Counts as a First-Time Buyer Program?
First-time home buyer programs provide financial assistance to make the process of purchasing a home simpler and more affordable. In general, these programs are offered by the state or the federal government. Specific initiatives vary depending on your location and eligibility for participation. It is possible to combine both state and federal-run programs when exploring first-time buyer assistance.
There are state-run assistance programs offered by the TDHCA and the Texas State Affordable Housing Commission (TSAHC). These programs offer fixed interest rates, down payment assistance, tax credits, and specialized grants depending on income and profession. Federal loan programs are available through the Federal Housing Administration (FHA) and the USDA. which generally have favorable terms such as minimal to no down payments, low interest rates, and flexible credit history requirements. Certain programs have limitations based on income caps, veteran status, and professional experience.
Buyers go through participating lenders to apply for these programs. These lenders help first-time buyers navigate the process, providing expertise in loan qualification, application submission, matching with a funding source, underwriting, and closing on a home. Comprehensive, guided support is an essential part of working with an experienced lender throughout the home buying journey.
The Core Programs, Broken Down
TDHCA: My First Texas Home
My First Texas Home, offered through TDHCA, is a state-run assistance program for first-time home buyers in Texas. This program offers a fixed, low-interest rate 30-year mortgage loan and up to 5% of the loan amount as assistance for the down payment and closing costs. It is intended to assist first-time home buyers and veterans. To qualify, applicants must not have owned a home in the past three years, or must be a qualified veteran of the armed services.
There are additional qualifications that must be met related to credit score, income level, property purchase price, and debt-to-income (DTI) ratio. Depending on the option you and your lender choose, the assistance is either forgiven after three years or repaid when you sell, refinance, or pay off the first mortgage. Home buyers must also follow specified purchase price limits for properties.
TDHCA My Choice Texas Home
The My Choice Texas Home program does not have a first-time home buyer requirement. It is open to eligible first-time buyers, repeat buyers, and veterans. Texas home buyers who participate in My Choice Texas Home get a low-interest, 30 year fixed rate mortgage. They have the option to choose from 2, 3, 4, or 5% assistance for the down payment and closing costs. This assistance is structured as a forgivable 3-year lien provided timely monthly payments are made on the first mortgage and the home is maintained as a primary residence.
This program is open to a wider range of potential applicants, but they must still meet specified qualifications, credit score, income limits, DTI ratio limits, and residency requirements. There are no purchase price limits for this particular program. Participants must complete a home buyer education class and occupy the home within 60 days of closing.
Texas Mortgage Credit Certificate (MCC)
The Texas MCC turns a percentage of the mortgage interest you pay each year into a federal tax credit, up to $2,000 per year (Source: TDHCA). The exact credit rate is set by TDHCA and can change, so confirm the current rate with a participating lender. The Texas MCC program is open to homeowners that meet specific criteria. First-time home buyers can apply as can applicants interested in properties in certain targeted areas, even if they are not first-time home buyers. Qualified veterans are also eligible for MCC assistance and there are income limits for the program.
FHA Loans
FHA loans are insured by the Federal Housing Administration and offered through private lenders. They allow a lower down payment and more flexible credit requirements than many conventional loans. The trade-off is mortgage insurance, which includes an upfront premium and an ongoing annual premium. They are often a fit for buyers with limited savings or lower credit scores. A minimum down payment of 3.5% is usually required, and these loans are available nationwide with no location restrictions or income limits.
USDA Loans
USDA loans are guaranteed by USDA Rural Development, and available to home buyers through private lenders. There are no down payments required for USDA loans, but properties must be in certain designated rural areas. Applicants must meet income-eligibility requirements, typically meaning that the total household income cannot be greater than 115% of area median income (AMI) for the county where the property is located. Participants must occupy the home as a primary residence.
How Down Payment Assistance Actually Works
Forgivable Second Liens
In some cases, down payment assistance is offered as a forgivable second lien, functioning as a secondary mortgage. If you make payments towards your first mortgage for a set period of time, often between three and five years, this second mortgage is generally forgiven without you having to pay it back. If you decide to sell the property, move out, or refinance the home within this three to five year period, forgiveness is generally off the table and full repayment of the second mortgage is required.
Deferred Second Mortgages
Another way down payment assistance can be structured is as a deferred second mortgage. The assistance amount is considered as a second mortgage, but no payments are required as long as you live in the home. Payments are deferred until you sell or refinance the home, or once you pay off the first mortgage. This second mortgage will need to be repaid, but payments do not start until one of these conditions is met.
What Determines Eligibility
There are a variety of factors that determine eligibility for down payment assistance, including:
- Credit Score – Prospective home buyers must meet specified credit score requirements. These will vary depending on the assistance program or loan type in question. For example, TDHCA assistance programs may require a 620, 640, or 680 minimum credit score.
- Income Limits – Certain assistance options are only available to buyers who meet specific income thresholds. These income limits can vary based on household size and total household income. They may also be tied to the area median income, or to specific geographic areas.
- Purchase Price Limits – Properties are often subject to maximum purchase price limits in many buyer assistance programs. For Texas home buyers, it’s important to note that TDHCA My First Texas Home has purchase price limits, while My Choice Texas Home does not. Additional limits may apply, however, based on the private lender and loan terms selected.
- Primary Residence Requirement – As a general rule, down payment assistance programs require the homeowner use the property as a primary residence. The goal of these programs is to help buyers achieve homeownership, and to have a safe, affordable primary residence.
- Home buyer Education – Many home buying assistance programs come with the stipulation that qualified applicants complete designated home buyer education courses. Courses cover a range of relevant topics, including budgeting, homeownership readiness, and the closing process.
Getting Started the Right Way
Confirm Your Numbers With a Lender First
Talk to a participating lender first and secure a pre-approval before you begin the process of looking at properties. The lender will let you know what amount you can expect to reasonably borrow and what limits you need to be mindful of. Ask whether you can pair a Mortgage Credit Certificate with down payment assistance. With TDHCA, the MCC can be combined with My First Texas Home, which means help at closing and a tax credit every year after (Source: TDHCA).
Complete Home buyer Education Early
Don’t wait until the last minute to complete a home buyer education course. You don’t have to be enrolled in an assistance program to take the course. Take the course before you begin the process, or during the early stages of your home buying journey, so you don’t have to rush to sign up and get through the class later on.
Check County-Specific Limits Before You Shop
When you know which localities you are interested in buying in, research what county-specific limits might apply in these areas. Home buyer assistance programs can be restricted based on AMI, so getting a basic understanding of the average household income in the areas you are interested in is helpful. Programs may also have purchase price limits, so taking a look at average home sale prices in various neighborhoods and counties can also help guide your search.
Conclusion
First-time home buyer programs in Texas exist to close the affordability gap, not replace good planning. Before you commit to an assistance program, it’s always a good idea to make sure you have done your research and weighed all of your options to ensure you have found the solution that is best for you. Take a hard look at interest rates, repayment terms, structuring of the second mortgage, and loan length before you sign on the dotted line.
A lower purchase price makes whatever assistance you qualify for go further. Homes in Elgin, TX start at a lower entry price than much of the Austin area, which can help your budget stretch. Explore Floor Plans to see what fits. Program terms, limits, and availability change, so confirm all current details with a participating lender before you commit.
FAQs
What are Texas first-time home buyer programs?
A: Texas first-time home buyer programs provide first-time buyers with low-interest, fixed rate mortgages and down payment assistance to make homeownership more affordable. Programs offered through the Texas Department of Housing and Community Affairs (TDHCA) offer 30-year loan terms and up to 5% in down payment assistance.
How do I apply for TDHCA down payment assistance?
A: First, determine if you qualify by completing the TDHCA Eligibility Quick Check. Then, complete a HUD-certified home buyer education course. Finally, find a TDHCA participating lender and submit your application as part of securing your financing.
How much does down payment assistance actually save me?
A: It depends on the program and loan size. TDHCA assistance is up to 5% of the loan amount, so on a $300,000 loan that could be up to $15,000 toward the down payment and closing costs (Source: TDHCA). An MCC can add up to $2,000 per year in federal tax credits. Your lender can show you the actual numbers.
Is down payment assistance free money I never have to repay?
A: Not always. Forgivable assistance is only forgiven if you keep the home as your primary residence and meet the program’s terms for a set period, often three years. If you sell or refinance early, you may have to repay it. Deferred assistance must be repaid when you sell, refinance, or pay off your first mortgage.
Will using one of these programs hurt my chances of loan approval?
A: Typically, participating in a home buyer assistance program does not hurt a prospective buyer’s chances of loan approval. It can, however, lengthen the timeline for closing on a property and require more time and paperwork to ensure mandated guidelines are met.