How Much You Need For A Down Payment On A Texas $500k Home

With the median price of a Texas home being about $334,000 in early 2024, a $500,000 home can feel quite a stretch. However, it's well within reach for many buyers compared to hot markets such as California or New York. With a budget of $500,000, you can snag a recently built home right under 2,000 square feet in a modest area in Austin, one of the most desirable cities in the state.

But no matter where you're buying and what your budget is, your down payment amount just might be the most important factor in the home buying process. For years, there's been a big misconception that potential home buyers need to set aside at least 20% of a home price, but that's no longer the case. If you're looking into putting a down payment on a $500,000 home in the state of Texas, know that the amount varies quite a bit since it depends on the type of loan you're getting. Most conventional loans require a minimum down payment of 3%, while government-backed options such as a Federal Housing Administration loan may let you put down less; you're looking at anywhere between $15,000 and $100,000 for a down payment.

Let's talk about the most common types of loans offered in Texas and what each of them require as a down payment. The first is a conventional loan. While the unwritten rule for a conventional loan is a down payment of 20% of the home price, you can choose to put as little as 3% down, though you have to purchase private mortgage insurance if it's less than 20%. To qualify, you usually need a minimum credit score of 620.

There are also loans backed by the FHA meant to help potential buyers who don't have enough to make a considerable down payment, or who have a less-than-ideal credit score. The minimum credit score is 580, which qualifies you for a 3.5% down payment. The downside to an FHA loan is that the upfront and monthly fees are quite high, in part due to a required mortgage insurance premium. Department of Veterans Affairs loans and U.S. Department of Agriculture loans have very specific requirements, but if you qualify, you can put 0% down and neither option requires a mortgage insurance premium. However, VA loans are solely for active-duty service members, veterans, and their spouses and USDA loans are for those who meet specific income and location requirements.

The loan you choose and how much you decide to put down are probably the two most-important decisions you make in the home buying process. Before you set a down payment amount, sit down and look over your budget. It's important to understand how much you can afford and figure out aspects such as your projected debt-to-income ratio. The general idea is that all of your debt, including housing costs, should not exceed 36% of your gross income. You should also consider additional projected expenses — if you're planning to have a baby in the near future or have a child heading off to college soon, consider such factors since they also affect how much you can spend comfortably on the purchase of a home. 

If you're completely unfamiliar with the overall process, you can seek out professional guidance from a financial advisor. This may also be a good time to get familiar with how to use a mortgage calculator to break everything down for you before you speak to lenders. Ultimately, if you want to avoid any longterm additional costs, then you definitely want to opt for a conventional loan with a substantial down payment amount.