Texas Homeownership Without State Income Tax: What It Means for Mortgage Affordability

How Texas’s No State Income Tax Works

Texas is one of the few U.S. states that does not levy a state personal income tax. This benefit attracts homebuyers and investors who want more take-home income and flexibility in managing housing costs. But while no state income tax in Texas is a clear advantage, it’s important to understand how this tax structure impacts overall mortgage affordability. From higher property taxes to rising home prices, several factors influence the true cost of owning a home in Texas.

Understanding the Income Tax Advantage

Texas does not tax personal income. That means wages, business income, retirement distributions, and investment earnings are not taxed at the state level. For residents, this results in more money kept from each paycheck. Compared to states like California or New York, where personal income tax can exceed 9%, the savings are significant.

A household earning $100,000 per year in Texas pays no state tax on that income. In contrast, a similar household in California could pay thousands in state income taxes annually. This extra disposable income can go directly toward a mortgage, savings, or other financial goals.

Benefits for Loan Qualification

Because lenders often consider net income when determining mortgage eligibility, the lack of state income tax can improve a borrower’s debt-to-income ratio. This may help buyers qualify for higher loan amounts or reduce their monthly debt burden. For first-time buyers or those relocating from high-tax states, this benefit can make a big difference in purchasing power.

The Trade-Off: High Property Taxes

Why Property Taxes Are Higher in Texas

Texas relies heavily on property taxes to fund public services. With no income tax to support local budgets, school districts, cities, and counties turn to property tax revenue. As a result, the state has some of the highest effective property tax rates in the country.

In areas like Harris County, which includes Houston, and Travis County, home to Austin, property tax rates can reach or exceed 2.5% of a home’s assessed value. These taxes are typically collected through mortgage escrow accounts, meaning they are part of the monthly housing payment.

How Property Taxes Impact Affordability

Even with no state income tax, high property taxes can raise the cost of homeownership. For example, a $350,000 home with a 2.5% tax rate would result in $8,750 per year in property taxes—or over $700 per month. That’s a significant addition to a monthly mortgage payment and can impact overall affordability.

LBC Capital helps clients assess the full cost of homeownership, not just the mortgage payment. We ensure borrowers understand how property taxes influence long-term affordability.

Housing Costs and Market Trends

Rising Home Prices in Texas

Texas has seen rapid population growth over the past decade. Major cities like Austin, Dallas, Houston, and San Antonio have experienced increased demand for housing, which has driven up home prices. In many areas, home values have outpaced wage growth, creating affordability challenges.

In Austin, for instance, median home prices have more than doubled since 2015. Even in more affordable areas, buyers face competition and rising prices. These trends affect mortgage affordability regardless of tax advantages.

Mortgage Rates and Their Effect

Another key factor in affordability is interest rates. Over the past two years, mortgage rates have risen from historic lows to multi-year highs. A higher interest rate means a higher monthly payment, even if the loan amount stays the same.

LBC Capital works with clients to secure competitive rates and loan terms. We guide buyers through market conditions and help them lock in the best possible financing for their situation.

What Buyers Should Consider

Total Monthly Housing Costs

Mortgage affordability in Texas depends on more than income tax savings. Buyers need to consider the full picture: principal and interest, property taxes, homeowners insurance, and any HOA fees. Skipping over these expenses can lead to financial surprises.

At LBC Capital, we walk clients through a detailed affordability analysis. We provide accurate estimates of monthly costs so buyers can make informed decisions.

Local Market Conditions

Not all parts of Texas offer the same housing value. While Austin and Dallas are known for higher prices, smaller markets like Lubbock, Waco, or El Paso may offer more affordable options. Buyers who are flexible with location may find better deals in less competitive areas.

LBC Capital provides local insights and market data to help clients find neighborhoods that match their budget and lifestyle. Our personalized service ensures each borrower receives tailored advice.

Long-Term Financial Planning

No income tax means more take-home pay—but it also means relying more on local property taxes and sales taxes. Buyers should plan for long-term housing costs, including potential increases in property tax assessments.

We at LBC Capital help clients build sustainable financial plans. We consider future income, expected expenses, and changing market conditions to ensure long-term affordability.

Why Choose LBC Capital

LBC Capital offers more than just mortgage loans. We offer guidance, education, and support throughout the homebuying process. Our team has deep knowledge of the Texas market and understands how tax policies affect affordability.

We personalize every loan to meet the borrower’s needs. Whether you’re moving from a high-tax state or buying your first home in Texas, LBC Capital ensures you get the best value. We break down complex financial terms and provide clear advice, helping you navigate Texas’s unique tax and housing landscape.

LBC Capital also works with multiple lenders, giving our clients access to a wide range of loan options. From FHA and VA loans to jumbo mortgages, we make it easy to compare choices and find the right fit.