Mar 23, 2024 - News

Brace your budget before buying a house in Texas

Illustration of a welcome mat that is a one-hundred dollar bill.

Illustration: Maura Losch/Axios

Texas home sales are picking up, largely driven by buyers who waited out last year's sky-high mortgage rates, according to Jef Conn, chairman of Texas Realtors.

Why it matters: You can't control housing prices and inventory, but you can strengthen your finances to strike when the time is right.

What they're saying: "While rising inventory will offer buyers more options, median price is expected to remain relatively flat across the state," Conn tells Axios.

State of play: People are generally holding onto homeownership as the American dream, but it might feel far from reality, depending on where you live.

  • In Texas, where real estate is more affordable compared to incomes, people in their late 20s and early 30s are hunting for their first home.
  • But for those in higher-cost areas, it's not even on their radar, according to finance writer Katie Gatti (Money with Katie).

The big picture: Wannabe buyers fall into two camps, according to Katy Song, chief financial planner of Domain Money. There are people who are over-prepared, and people who think they can afford more than they realistically can, Song tells Axios.

Here are her tactical tips for first-time home buyers to prepare wisely for taking the plunge.

💳 Look at your credit. If you don't have credit or it's not in good shape, it's not time to buy, she says. Your credit score determines how willing lenders are to give you money.

  • If you're starting from scratch, Song recommends getting a secured credit card. To start building your score, put a recurring payment like Netflix on the card, and automatically pay it off every month.
  • If you have credit card debt, devise an aggressive plan to pay it off.
  • You don't need to pay off your student loan debt or even car loans before applying for a mortgage.

💸 Calculate your maximum monthly payment. Generally, 28% to 32% of your net monthly cash flow is a safe bet.

  • Reality check: Your lender will likely approve you for a higher mortgage than you can comfortably afford, Song says. They're not factoring in recurring expenses like therapy, gym memberships or that oh-so-necessary pet subscription box.

💪 Build your savings and downpayment. Put away at least three months of expenses for emergency savings.

  • For a downpayment, Song recommends at least 10-20% to keep your monthly payment comfortable, and start building equity as quickly as possible.
  • Plus, more money down could get you that extra bedroom, for instance, even if it means having to save for longer.
  • Yes, but: Putting 20% down will help you avoid Private Mortgage Insurance, lowering your monthly cost.
Share of active home listings with price drops in select Texas metro areas
Data: Redfin; Chart: Kavya Beheraj/Axios

Zoom out: Competition for homes is a bit more relaxed in Texas' major metro areas than in other parts of the country, according to Zillow senior economist Orphe Divounguy.

  • Roughly 3 in 10 homes for sale in San Antonio, Dallas, Houston and Austin saw price drops in January, per the latest housing market data from Redfin.

What's next: "Screen appeal is the new curb appeal," Divounguy tells Axios.

  • Listings that cater to Zillow-surfers by including a 3D home tour and interactive floor plan can get more page views, saves and shares, Divounguy says.

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