Buying a house in Houston: A how-to

If you’re thinking about buying a home in Houston, get ready for some good news: In September of 2022, the area’s available inventory reached its highest level since July of 2020. And while housing prices have climbed here throughout the pandemic, sales prices are coming down from their all-time highs in May and June, according to data from the Houston Association of Realtors. 

However, don’t let those numbers fool you into thinking that homebuying in Houston is simple. As mortgage rates increase and inflation worries linger, you’ll need plenty of help to get your own set of keys. Read on for everything you need to know to unlock a new chapter in Houston.

Why buy a house in Houston?

Everything is happening in Houston. Hewlett Packard, NRG and Sysco are just a few of the Fortune 500 companies headquartered here, so you’ll have plenty of job opportunities. And while you’re likely familiar with the adage that everything is bigger in Texas, there is one notable exception: How much you’ll have to spend as a resident. The cost of living in Texas is 8 percent lower than the national average.

Buying a home here today likely means it will be worth more in the future, too, as Houston is continuing to welcome loads of newcomers. A recent forecast for planning for the area’s transit expects 9.6 million people to call Houston home by 2040 – a huge increase from the 7.21 million people who live here today. So, when you’re ready to sell down the road, you likely won’t have trouble finding a buyer. In hot ‘hoods, Houston homes have routinely fetched 4 percent above their list price.

Find a Houston home for your budget

Prices may be retreating a bit, but “lower” isn’t the same as “low.” The average price for a single-family home in the greater Houston area remains over $400,000, and the median sales price  sits at $343,950 as of September 2022, — a nearly 15-percent increase from the same time one year earlier. If you’re single or don’t need much space, townhomes and condos can help you save quite a bit of cash; the median price for these units is just $220,000.

As you start looking at listings around Houston, it’s important to understand that you’re looking at a massive piece of land. The Houston metro area covers nearly 10,000 square miles, including nine counties and 124 incorporated cities. If you’re a family just starting out, you might want to check out GOOF – Garden Oaks and Oak Forest. If you’re single, perhaps EaDo – east of downtown – which offers the perfect mix of walkability and buzzing nightlife. And if you’re nearing retirement, maybe Sugar Land’s mix of golf courses and country clubs is the place to enjoy your post-working years.

Bear in mind that Houston home prices can be as far-flung as the metro area itself. For example, Redfin data shows that median home prices in southwest Houston were around $265,000 in September 2022 while median prices in central Houston were $510,000. Translation: Location really matters here.

When to buy a house in Houston

It’s not just about where you buy a house, though; it’s about when. Timing the market is tough – especially now as the two-year buying craze calms down amidst higher mortgage rates.

Historically speaking, you’ll likely find more homes available in the summer months. For example, the area’s housing supply was 2.7 months in September – up from 1.3 months in March. If you’re less concerned about being able to choose from more options and you’re more focused on spending less cash, November and December tend to be the timeframe when fewer buyers pay over asking price.

Things to consider when buying a house in Houston

How safe are the neighborhoods where you’re looking to live?

Houston is a big city, and every big city faces a share of big problems. While CrimeGrade gives Houston a D for safety overall, it’s important to understand that different pockets of the metro area have different levels of criminal activity. As you’re comparing neighborhoods, make sure you’re thinking about where you’ll feel comfortable walking home and where you’ll have concerns about crime.

How long will your commute be?

If you’ll regularly be going into an office or a worksite, it’s important to think about how long you want to spend in the car each day and how high your gas bill will be to get to and from. Houston’s average commute time is 27 minutes, but the area also has a decent share of people known as super- commuters – those who spend 90 minutes each way on their trips to and from work. As more people move here, traffic is bound to get worse, so make sure you’re picking a place where your drive time won’t drive you crazy.

How much will you pay in closing costs?

In addition to your down payment in Houston, you’ll need to consider how much to budget for your closing costs. According to data from ClosingCorp, real estate transactions in Texas typically have closing costs that add up to 1.5 percent of the purchase price. Based on the median home price tag in Houston of $343,950, that comes out to just over $5,159 in extra expenses. While the seller may cover some of those costs – sellers often pay for the new title insurance policy here – it’s important to note that your lender may charge additional fees for your loan. It’s important to compare multiple lenders in Houston to get a sense of the true costs of buying a home.

How much will you pay in property taxes?

Texas makes plenty of headlines for its lack of certain tariffs: There’s no state income tax and no real estate transfer taxes. However, the government has to earn money somehow, and the state’s average property tax rates are quite high at 1.8 percent. It’s important to understand that tax rates vary based on where you buy in the Houston area, too. For example, if you want to send your kids to school in the Galena Park district, you’ll pay a higher rate than in the Clear Creek district. Be sure to ask the seller for a rundown of what they’ve paid for property taxes previously.

What kind of homeowners insurance will you need?

While Houston offers plenty of opportunities to enjoy Texas living, it also comes with some risky weather conditions. When Hurricane Harvey hit the area in 2017, the storm caused more than $125 billion of damage, according to the National Hurricane Center. As climate change increases the potential for catastrophic storms, more than 30 percent of homes in Houston have heightened flood risks. Be sure to determine whether you will need to pay for a separate flood insurance policy to protect your home.

Tips for buying a house in Houston

Save for a down payment

As you think about how much you can afford to spend on a house in Houston, the math starts with how much you can afford to contribute to a down payment. In Texas, the average down payment in spring 2022 was $31,750. However, you don’t necessarily need that much money to buy a home in Houston. If you have excellent credit, you can probably qualify for a conventional loan that lets you put down as little as 3 percent of the purchase price. On a $350,000 home, that translates to a $10,500 down payment.

If you’re a first-time homebuyer who also qualifies as a low-income borrower, you may be able to score some valuable down payment assistance, too. The city of Houston offers up to $30,000 of down payment assistance. While this technically counts as a second mortgage, there is good news: Your full amount will be forgiven if you live in the home for at least five years. So, if you have a long-term plan to be a Houstonian, it’s free money.

Find a local Houston real estate agent

Between a shortage of housing supply and Houston’s huge geographical footprint, buying a home here can be very frustrating. With that in mind, it’s wise to find a real estate agent who can help you eliminate some of those headaches, pointing you toward listings that meet your lifestyle needs and budget. Realtors have a good sense of what’s happening in the market — how quickly homes are going to contract and whether other buyers are offering above asking price, for example — so they can help you avoid making big mistakes in the process.

Get pre-approved for a mortgage

Getting pre-approved for a mortgage is the foundation of finding a home. Any seller in Houston will want to see that a lender has taken a preliminary look at your finances and signed off on a high likelihood of loaning you the money you need. This step is free, and it doesn’t take much time at all. Pull together documentation about your finances including past tax returns, pay stubs from your employer and bank account numbers, and fill out a lender’s online pre-approval application.

Understand the playing field

Part of the reason that getting pre-approved is so critical is because you might be competing against other buyers who don’t actually need a mortgage. According to research from ATTOM, more than 34 percent of single-family home sales in the U.S. were all-cash deals in the first quarter of 2022. In Houston, it’s not all individuals who are planning to live in the home, either. Companies like Offerpad and Opendoor – known as iBuyers – are very active in the Houston area. In fact, Houston is the number four city in the country for iBuying. As you explore lending options, you may want to look into cash-backed bid programs, which can make your offer look just as good as someone with deep pockets.

Bottom line on buying a home in Houston

A lot of people have their sights set on Houston. In 2021, there were nearly 131,000 closings on residential homes—  a record number for the area. It’s been a seller’s market, but that’s slowly starting to change. In 2022, more inventory has become available, and more sellers have been dropping their prices. If you have the budget to withstand higher mortgage rates, it’s beginning to look a lot brighter to buy a home in Houston. And while you might be worried about high home prices, the cost of rent in Houston has been skyrocketing, too. If you’re ready to plant your roots here, buying a home is a smart move.