How mortgages actually work — and what matters when buying in the Texas Hill Country.
Mortgage rates change daily and vary significantly based on loan type, credit score, down payment amount, and property location. The widget below displays live rate data from Mortgage News Daily so you can see where rates stand today — not last month's average from a blog post.
Use this page to understand the mortgage landscape before you start shopping. When you are ready to talk numbers, Bill connects you with lenders who work the Hill Country market daily and understand the specific requirements of rural property financing — well systems, septic inspections, acreage appraisals, and the nuances that generic online lenders miss.
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Rates shown are national average market data and are not a loan quote, loan approval, or commitment to lend. Payment estimates are for general planning only. Actual rates, payments, taxes, insurance, PMI, fees, and loan terms vary by borrower, property, lender, credit profile, and market conditions.
Five loan programs. Different rules, different buyers, different math.
There is no single "best" mortgage. The right loan depends on your financial profile, the property type, and how long you plan to hold the home. Here is an honest breakdown of the five most common options available to Hill Country buyers.
Conventional Loans
The most common loan type. Not backed by a government agency — funded through private lenders and often sold to Fannie Mae or Freddie Mac. Minimum down payment as low as 3%. Buyers who put down less than 20% pay Private Mortgage Insurance (PMI) until they reach 20% equity. Best for buyers with solid credit (680+) and stable income. Conventional loans are the standard for properties in Boerne, Fair Oaks Ranch, and master-planned communities.
FHA Loans
Insured by the Federal Housing Administration. Designed for buyers with lower credit scores or limited savings. Minimum down payment of 3.5% with a credit score of 580 or above. More lenient on debt-to-income ratios than conventional loans. Mortgage Insurance Premium (MIP) is required for the life of the loan in most cases. A strong option for first-time buyers who do not yet have the credit profile for conventional financing.
VA Loans
Backed by the U.S. Department of Veterans Affairs. Available to active-duty service members, veterans, and eligible surviving spouses. No down payment required. No monthly PMI. Competitive interest rates. Requires a Certificate of Eligibility (COE) and a VA appraisal. With JBSA (Joint Base San Antonio) nearby, VA loans are heavily used throughout Bexar, Kendall, and Comal Counties. Bill works regularly with VA buyers and understands the appraisal and funding fee structure.
USDA Loans
Backed by the U.S. Department of Agriculture. Zero-down-payment financing for properties in designated rural areas. Much of Kendall County, western Comal County, and Bandera County qualify as USDA-eligible — even though many of these areas feel suburban, not rural. Income limits apply based on household size and county. The property must meet USDA habitability standards, which can include well water testing and septic system verification. An often-overlooked option for buyers on acreage outside city limits.
Jumbo Loans
For loan amounts exceeding the conforming loan limit (currently $806,500 in most Texas counties). Required for higher-value properties in communities like Cordillera Ranch, The Dominion, and Stone Creek Ranch. Jumbo loans have stricter credit, debt-to-income, and cash reserve requirements. Down payments of 10% to 20% are standard. Interest rates may be slightly higher than conventional, though the gap has narrowed. Buyers shopping above the conforming limit should be pre-approved specifically for jumbo financing before making an offer.
How much cash you actually need to close — and the trade-offs at each level.
The down payment is the portion of the purchase price you pay upfront in cash. It is not the same as closing costs (which are separate). The amount you put down directly affects your monthly payment, your interest rate, and whether you pay mortgage insurance.
No down payment required for eligible borrowers on VA and USDA loans.
Minimum for conventional (3%) and FHA (3.5%). PMI or MIP applies below 20%.
Standard for jumbo loans and eliminates PMI on conventional loans at 20%.
For Hill Country buyers, the practical reality: a 3% down payment on a $350,000 home is $10,500 in cash before closing costs. A 20% down payment on the same home is $70,000. The gap between those two numbers is often the deciding factor in timing. Bill helps buyers evaluate whether to put less down now and refinance later, or to wait and accumulate a larger down payment — based on the actual market conditions and the specific property.
Down payment assistance programs — including TSAHC grants for qualifying public servants — can cover a significant portion of this cash requirement. See the First-Time Buyers page for program details.
Two structures. One locks your rate for the life of the loan. The other gives you a lower starting rate with future uncertainty.
Fixed-Rate Mortgage
Your interest rate stays the same for the entire loan term — whether that is 15, 20, or 30 years. Your principal-and-interest payment never changes. The most common structure in the U.S. is the 30-year fixed.
- Predictable payments for budgeting
- No rate risk if you hold long-term
- Best for buyers staying 7+ years
Adjustable-Rate Mortgage (ARM)
Offers a lower fixed rate for an initial period (typically 5, 7, or 10 years), then adjusts periodically based on market indexes. A 5/1 ARM, for example, locks your rate for five years, then adjusts once per year after that.
- Lower initial rate than fixed
- Payment can increase after the fixed period
- Best for buyers planning to sell or refinance within 5–7 years
In a low-rate environment, a fixed-rate mortgage is almost always the simpler choice. When rates are elevated, an ARM can offer meaningful savings during the fixed period — but you need to be realistic about your timeline. If there is any chance you will hold the home past the fixed period, the rate adjustment risk matters.
Your credit score determines not just whether you qualify — but what your loan costs over 30 years.
Lenders use your FICO score to assess risk. Higher scores mean lower perceived risk, which means lower interest rates — and on a $400,000 loan, even a quarter-point rate difference translates to tens of thousands of dollars over the life of the loan.
If your score is below 680, the most impactful financial move before home shopping is often 60 to 90 days of targeted credit improvement — paying down revolving balances, disputing errors, and avoiding new credit inquiries. Bill connects buyers with credit review resources when this step will materially improve their financing terms.
A pre-approval letter is not optional. It is the first step — and in a competitive market, it is the price of entry.
Pre-approval means a lender has reviewed your financial documents — tax returns, pay stubs, bank statements, credit report — and issued a written commitment to lend you a specific amount. This is different from a pre-qualification (a quick estimate based on self-reported numbers) and a pre-approval is what sellers and listing agents expect to see with any offer.
What the lender reviews
- Income verification — Two years of W-2s or tax returns, recent pay stubs (30 days), and year-to-date earnings. Self-employed buyers need two years of business tax returns.
- Asset verification — Bank statements (2 months) confirming sufficient funds for down payment, closing costs, and reserves.
- Credit report — Full tri-merge credit pull. Scores, payment history, outstanding balances, and any derogatory marks.
- Debt-to-income ratio (DTI) — Total monthly debt payments divided by gross monthly income. Most conventional lenders cap DTI at 43%–45%. FHA allows up to 50% in some cases.
- Employment verification — Lender contacts your employer to confirm current position, salary, and likelihood of continued employment.
Why timing matters
Pre-approval letters are typically valid for 60 to 90 days. Getting pre-approved too early wastes the window; getting pre-approved too late delays your ability to make an offer. Bill coordinates pre-approval timing with your property search so the letter is current when you need it — and so you know your exact budget before you start touring homes.
Budget 2% to 5% of the purchase price on top of your down payment. Here is where that money goes.
Closing costs are the fees and expenses paid at the final step of the transaction — when you sign the paperwork and take ownership. They are separate from your down payment and are paid in addition to it. On a $400,000 home, expect $8,000 to $20,000 in closing costs depending on the loan type, lender fees, and property-specific costs.
Lender Fees
Origination fee, application fee, underwriting fee, credit report fee, flood certification. Varies by lender — typically $1,000 to $3,000.
Title & Escrow
Title search, title insurance, escrow fees, recording fees. Required on every transaction. Typically $1,500 to $3,500 depending on property value.
Prepaid Items
Homeowner's insurance (annual premium collected at closing), property tax escrow reserves (2 to 6 months), prepaid interest (daily interest from closing to end of month).
Third-Party Services
Home appraisal ($400–$700), home inspection ($350–$600), survey ($400–$800), termite/pest inspection ($75–$150). In Hill Country, well and septic inspections add $300 to $800.
Sellers may negotiate to cover part of the buyer's closing costs as part of the contract — this is market-dependent. In the current Hill Country market, Bill evaluates whether requesting seller concessions improves your position or weakens your offer.
No state income tax — but higher property taxes. Here is how Texas affects your mortgage math.
No State Income Tax
Texas is one of nine states with no personal state income tax. For buyers relocating from California (top marginal rate of 13.3%), this is a significant net income increase. However, Texas funds its services primarily through property taxes — which means your annual property tax bill will be noticeably higher than what you may be used to.
Higher Property Taxes
Texas property tax rates vary by county and school district. Kendall County (Boerne, Fair Oaks Ranch) typically ranges from 1.8% to 2.4% of assessed value depending on the specific taxing entities. Bexar County (San Antonio) varies similarly. On a $400,000 home at a 2.1% effective rate, that is roughly $8,400 per year — or $700 per month escrowed into your mortgage payment. For California transplants, run the full comparison: lower (or zero) state income tax savings minus higher property taxes equals your actual net benefit.
Texas Homestead Exemption
Texas offers a homestead exemption that reduces the taxable value of your primary residence. The general homestead exemption reduces your school district taxes by $100,000 off the appraised value, and each county and city may offer additional exemptions. You must file the exemption with the county appraisal district after closing — it is not automatic. Filing the homestead exemption on a $400,000 primary residence can save $1,500 to $2,500 annually in school district taxes alone.
- File within two years of the purchase date
- Only applies to your primary residence (not investment properties or second homes)
- Additional exemptions for seniors (65+), disabled veterans, and surviving spouses
- Texas also caps annual homestead appraisal increases at 10% per year
How This Affects Your Monthly Payment
Your total monthly housing payment (PITI — Principal, Interest, Taxes, and Insurance) in Texas is driven heavily by the tax and insurance components. A $350,000 loan at 6.5% fixed results in approximately $2,212/month in principal and interest. Add $600/month in property taxes and $300/month in homeowner's insurance, and your total PITI is roughly $3,112/month — about $900 more than the loan payment alone. Budget for PITI, not just principal and interest.
The Hill Country is not a generic suburb. These are the things that catch first-time buyers off guard.
Budget for well and septic, not just the mortgage
Many Hill Country properties outside city limits use private wells and aerobic septic systems. These are not connected to municipal utilities — you own and maintain them. Budget for annual septic inspections ($150–$300), periodic pump-outs ($300–$500), and the possibility of well pump replacement ($2,000–$5,000 over the life of ownership). Factor these costs into your total monthly housing budget, not just the purchase price.
The appraisal can behave differently on acreage
Properties with acreage, well systems, and septic do not appraise the same as tract homes in a subdivision. Appraisers must account for water availability, road maintenance (county roads vs. HOA-maintained), and proximity to utilities. If you are financing with a VA or USDA loan, the property must meet additional habitability standards. Order your inspections early — well flow tests and septic inspections can add a week to your timeline.
Property taxes are not uniform across the Hill Country
A home in Boerne (Kendall County) and a home in northwest San Antonio (Bexar County) at the same purchase price can have meaningfully different tax bills because of different county, school district, and special district tax rates. Check the specific taxing entities for any property before making an offer. This is part of the due diligence Bill handles for every client.
Explore down payment assistance before assuming you cannot afford to buy
TSAHC grants, USDA zero-down loans, VA no-down loans, and various county-level programs can reduce or eliminate the cash required to close. Many first-time buyers in the Hill Country qualify for programs they never investigate because they assume the process is too complicated. See the First-Time Buyers and Veterans & Military pages for details.
Get pre-approved before you fall in love with a house
In competitive Hill Country markets — particularly Boerne, Fair Oaks Ranch, and The Dominion — properties move quickly. A pre-approval letter in hand means you can make an offer the same day you find the right home. Without one, you are shopping with a disadvantage. Start the pre-approval process two to three months before you plan to begin your active search.
Schedule a consultation to review your financing options
Bill connects you with Hill Country lenders who understand rural property financing — well systems, septic, acreage appraisals, and the specific requirements of each loan program. No pressure. Just a clear picture of where you stand.
Schedule a Consultation