Buying a home takes cash in several forms: the down payment, closing costs, prepaid items such as insurance and escrow deposits, and in many cases money left in the bank afterward. A clear plan turns a large, vague goal into a series of monthly steps. This guide walks through how to set a target and build your savings in a way that also works for the mortgage approval process.
Step 1: Work out your cash-to-close target
The down payment depends on the loan program and the price you choose. Some programs allow a small down payment, while a larger down payment can lower your monthly payment and may reduce or remove mortgage insurance. Ask a few lenders to show you the options for your price range.
Then add the other items you will need at closing:
- Closing costs: lender fees, appraisal, title insurance and title company fees, survey and recording fees.
- Prepaid items: the first year of homeowners insurance and initial deposits into your escrow account for property taxes and insurance.
- Earnest money and option fee: paid early in a Texas purchase contract. Earnest money is usually credited toward your costs at closing; the option fee may or may not be.
- Reserves: some loans require you to have funds left over after closing.
Your lender's Loan Estimate shows these costs in detail once you apply. Before then, use a cautious estimate and the closing-cost articles on this site to build a range.
Step 2: Set a timeline and a monthly amount
Divide the target by the number of months until you hope to buy. If the monthly figure is not realistic, you have three levers: a longer timeline, a lower price range, or a different loan program. Revisit the numbers every few months as prices and your savings change.
Step 3: Keep the savings safe and separate
Money for a near-term home purchase usually belongs somewhere stable and easy to access, such as a high-yield savings account or a money market deposit account at an FDIC- or NCUA-insured institution. Investments that can fall in value are riskier for money you need on a specific date. A separate account also makes it easier to see progress and to document the funds for your lender.
Step 4: Find room in the budget
- Automate a transfer to the savings account on payday.
- Direct windfalls, such as a tax refund or bonus, toward the goal.
- Review subscriptions, insurance policies and phone plans for savings.
- Pay down high-interest balances where it also improves your debt-to-income ratio, but keep building cash.
Step 5: Look into assistance programs
Texas has state and local programs that help with down payments and closing costs, often for first-time buyers or buyers within income limits. The Texas Department of Housing and Community Affairs (TDHCA) and the Texas State Affordable Housing Corporation (TSAHC) publish statewide programs, and many cities and counties run their own. Each program has its own eligibility rules, repayment terms and participating lenders, so read the details carefully.
Step 6: Keep a paper trail
Lenders verify where your down payment comes from. Expect to provide recent bank statements and to explain large deposits that are not from your regular pay. Avoid moving money between accounts or depositing cash without records in the months before you apply. If a relative is giving you money, ask your lender about its gift letter rules before the money is transferred.
Bottom line
Estimate the full cash you will need, not just the down payment. Save on a schedule in a safe, separate account, explore Texas assistance programs, and keep clear records of where the money came from. Doing this early makes both the purchase and the loan approval smoother.
This article is general information, not legal, tax or lending advice. Loan requirements differ between lenders and change over time, so confirm the details with your lender, the relevant agency or a licensed professional.