Key Terms Every Austin Homebuyer Should Know

Before You Start Shopping

Affordability

How much home you can comfortably buy based on your income, debts, savings, the mortgage rate and the ongoing costs of owning. In Austin, property taxes and insurance are a big part of the monthly payment, so affordability is about the full payment, not just the price.

Credit Score

A number, typically on a 300 to 850 scale, that lenders use to gauge how likely you are to repay debt. A higher score usually means a lower mortgage rate, so it's worth checking your credit before you apply.

Pre-Approval Letter

A letter from a lender stating how much it's willing to lend you after reviewing your credit, income and assets. It's stronger than a pre-qualification, which is a quick estimate based on information you provide. Sellers take pre-approved buyers more seriously.

Down Payment

The part of the purchase price you pay upfront in cash. You don't always need 20%: some conventional loans start at 3% down, FHA loans at 3.5%, and VA loans can require no down payment for eligible buyers. With less than 20% down on a conventional loan, expect to pay private mortgage insurance (PMI).

Buyer Representation Agreement

A written agreement between you and your agent that spells out the services you'll receive and how your agent is paid. Since the NAR practice changes of August 2024, buyers sign one before touring homes with an agent.

Financing Terms

Mortgage

The loan you use to buy the home, with the home itself as collateral. Your mortgage amount is usually the purchase price minus your down payment.

Mortgage Rate

The interest rate you pay to borrow. Even a small difference in rate changes your monthly payment and total cost over the life of the loan, so compare offers from more than one lender.

Rate Buydown

Paying upfront to lower your interest rate. A permanent buydown uses discount points to reduce the rate for the life of the loan. A temporary buydown, such as a 2-1, lowers the rate for the first years only. Buydowns are often funded with a seller concession.

Seller Concessions

Money the seller agrees to put toward your closing costs or a rate buydown instead of lowering the price. Loan programs cap how much a seller can contribute, so your lender and agent should structure the request together.

Making an Offer in Texas

Earnest Money

A good-faith deposit that shows the seller you're serious. Under the standard Texas contract, it goes to the escrow agent, usually the title company, within 3 days after the contract's effective date, and it's credited toward your purchase at closing. The amount is negotiable.

Option Period and Option Fee

A negotiated number of days after the effective date when you can terminate the contract for any reason and get your earnest money back. You pay a nonrefundable option fee for that right, delivered with your earnest money within 3 days, and it's credited toward the price if you close. The period ends at 5 p.m. local time on its last day.

Third Party Financing Addendum

The part of a Texas contract that protects you if your loan isn't approved. It sets a window for buyer approval; if financing falls through within that window, you can terminate and recover your earnest money.

Seller's Disclosure Notice

A written statement from the seller about the home's known condition, such as past repairs, flooding or foundation work. Texas law requires most sellers of single-family homes to provide one, and it's worth reading closely before your option period ends.

From Contract to Closing

Home Inspection

A professional evaluation of the home's structure, roof, systems and more by an inspector licensed by the Texas Real Estate Commission. In Texas, inspections happen during the option period, which is when you negotiate repairs or decide to walk away.

Appraisal

An independent estimate of the home's value ordered by your lender to confirm it isn't lending more than the home is worth. Texas doesn't require sale prices to be publicly disclosed, so appraisers rely heavily on MLS data. If the appraisal comes in below your price, that shortfall is called an appraisal gap: you can cover it in cash, renegotiate, or use an appraisal addendum if your contract includes one.

Survey

A drawing of the property's boundaries, improvements and easements. In Texas, a seller can often provide an existing survey with a T-47 affidavit confirming nothing has changed; if the title company won't accept it, a new survey is ordered.

Title Insurance

Insurance that protects against problems with the property's ownership history, such as liens or recording errors. Your lender requires a lender's policy; an owner's policy protects you. In Texas, title insurance premiums are set by the state, and sellers often pay for the buyer's owner's policy, though that's negotiable.

Closing Costs

The fees due to complete the purchase beyond your down payment, such as lender charges, title and escrow fees, prepaid taxes and insurance, and any discount points. Your lender's Loan Estimate lists them early, and your Closing Disclosure confirms the final numbers before you sign.

Closing and Funding

Closing is when you sign the final documents; funding is when your lender releases the money. Under the standard Texas contract, possession typically transfers at closing and funding, which is when you get the keys.

After You Move In

Homestead Exemption

A Texas property tax exemption for your primary residence. It removes $140,000 of your home's value from school district taxes, and many cities and counties add their own exemption of up to 20%. Homeowners 65 or older or disabled receive an additional $60,000 school district exemption. Having the exemption also qualifies your home for a 10% annual cap on increases in its taxable value. File with your county appraisal district, the Travis Central Appraisal District in Travis County, generally by April 30.

Equity

The part of your home you own outright: its market value minus what you still owe. Equity grows as you pay down the loan and as the home appreciates, and it's often what funds a future move.

MUD and PID

A Municipal Utility District (MUD) is a special district, common in newer neighborhoods around Austin, that levies its own tax to pay for water, sewer and drainage infrastructure. A Public Improvement District (PID) charges an assessment for neighborhood improvements. Both add to your annual costs, and sellers are required to disclose a MUD before you buy.

HOA

A homeowners association that maintains shared areas and enforces neighborhood rules, funded by dues. In Texas, the HOA addendum to your contract gives you time to review the association's documents and terminate if they aren't acceptable.

People need to buy homes. People need to sell homes. And they need someone in their corner who actually knows what they're doing, and who actually knows them.

— Adam Timothy Group

Want to go deeper on the contract itself? Read Understanding the Major Elements of an Offer on a Home Purchase in Texas, see how choosing the right lender impacts your Austin home purchase, and learn what it's like to work with us as your buyer's agent.

Frequently Asked Questions