Buying Your First Rental Property in Texas: Rates, Down Payment, and Seller Concession Limits Explained

Buying your first rental property is a big step toward building wealth. But the loan works differently from the one on the home you live in. The rules on interest rates, how much rent counts toward qualifying, and how much the seller can contribute are all stricter. Most first-time investors learn this after they’re already under contract.

This guide walks through the financing realities I go over with every investor client before they write an offer. I use a sample Houston-area rental to show the numbers.

Key points

• Investment property loans usually cost more than loans on a home you live in.
• Putting down more than 20% can lower your rate, but it also ties up more of your cash.
• If you’ve never been a landlord, the expected rent generally can’t add to your qualifying income.
• On a conventional investment loan, the seller can contribute only 2% toward your costs. Anything over that is lost.
• The total you can spend on points to lower your rate is capped at about 3% of the loan amount.
• In Texas, wait until your option period ends before ordering the appraisal.

Our example property

Throughout this post I’ll use a single-family rental in a Houston-area master-planned community with an HOA:

• Purchase price: $265,000
• Expected rent: about $2,300–$2,400 a month
• Buyers: a salaried couple who already own the home they live in. This is their first rental.

(This is a hypothetical example to show how the numbers work, not an offer of credit.)

1. Expect a higher interest rate than on your own home

Lenders treat investment loans as riskier than loans on a home you live in. Rents can stop if the property sits empty, and an owner under financial stress pays their own mortgage before a rental’s. So investment loans are priced higher. Recently the difference has often been close to a full percentage point at 20% down.

That doesn’t mean something is wrong with your file. It does mean comparing lenders matters more than usual. Some lenders want investor loans and price them competitively. Others price them high to discourage them. If a lender’s best rate still requires you to pay extra fees, that lender doesn’t want your loan, so move on to the next one.

2. 20% down or 25% down? It’s a cash decision, not just a rate decision

For our $265,000 example:

Putting 25% down usually gets you a better rate because you have more of your own money in the property. But if the rent will cover the payment either way, keeping $13,250 in the bank for repairs, empty months, or your next property may be worth more than a slightly lower rate.

Neither choice is wrong. It depends on whether you care more about the lowest monthly payment or about keeping cash available.

3. Your future rent may not help you qualify

Many first-time investors assume the rent will count as extra income on their application. Usually it doesn’t.

If you have no history of managing rental property, conventional loan guidelines generally let the expected rent offset the new property’s payment and nothing more. It can bring that property’s cost down to zero, but it can’t add income on top.

So qualifying mostly comes down to your current income compared with all of your debts. That includes the mortgage on the home you live in now. This is especially important when only one spouse is on the new loan. If your current mortgage is in both names, it still counts fully against the one applying.

4. The seller can only cover so much of your closing costs

Asking the seller to pay part of your closing costs is a smart way to keep more cash in hand. Every loan type limits how much the seller can contribute:

• Conventional loan on an investment property: 2%, no matter how much you put down
• Conventional loan on a primary home or second home: 3% with less than 10% down, 6% with 10–25% down, and 9% with more than 25% down
• FHA and USDA: 6%
• VA: the seller can pay all normal closing costs plus up to 4% in other concessions
• DSCR, non-QM and jumbo loans: each lender sets its own limit, usually 3–6%, and sometimes only 2% on investment properties
• Cash purchase: no limit, so it’s purely a negotiation

In our example: 2% of $265,000 is $5,300. If the buyers had asked for 3% ($7,950), the extra $2,650 couldn’t be used. It would either be lost or have to come off the price, and the appraisal would have to support the lower price.

Three things to know no matter which loan you use:

• Some normal seller costs don’t count against the limit. These include the owner’s title policy, the seller’s share of property taxes, and a buyer’s agent commission paid by the seller.
• Repairs and credits are treated differently. Repairs the seller finishes before closing don’t count. A cash credit for repairs does.
• Agree on the credit before you write the offer, not during the option period. If you ask for too much, the extra money goes unused.

5. Buying down your rate has a limit

You can pay “points” upfront to lower your rate. One point costs 1% of the loan amount. Most lenders cap the total of points plus certain lender fees (underwriting, credit report and similar) at about 3% of the loan amount. Title fees generally don’t count toward that cap.

On a $198,750 loan, 3% is about $5,960. Some of that is already taken up by standard fees, so the room left for buying down the rate is smaller than most people expect. (Want to know what points actually buy you? See my earlier post, [Mortgage Points Explained: What Houston Buyers Are Actually Paying For].)

One more tip: some wholesale lenders run periodic pricing incentives that lower the rate at no cost to the borrower. That’s one more reason to work with a loan officer who compares several lenders.

6. A strong pre-qualification letter is one backed by documents

A letter only carries weight if someone has actually reviewed your pay stubs, W-2s, bank statements and credit. Listing agents can tell when a letter is based only on what the buyer said, and in a competitive deal that hurts you.

Send your documents early. If you’re salaried and not self-employed, you usually won’t need tax returns. Here’s what’s typically requested:

• 30 days of pay stubs
• 2 years of W-2s
• 2 months of bank statements
• Driver’s license
• Current mortgage statement and homeowners insurance (if you already own a home)

7. In Texas, timing matters: wait until the option period ends

Here’s the order I follow to keep you from paying for things you can’t get back:

1. Under contract: submit the loan, sign the lender’s disclosures, and upload your documents.
2. During the option period: the lender reviews your income and assets, but the appraisal isn’t ordered yet. The appraisal fee isn’t refundable. If you back out during the option period, you’d lose that money on top of your option fee.
3. Once the option period ends: order the appraisal, submit to underwriting, order the title work, and finalize your insurance.

Two Texas money-savers:

• Appraisal waivers. Some lenders will skip the appraisal on certain files, which saves you several hundred dollars.
• Ask for the seller’s existing survey. The title company orders the survey, not the lender, so a lender can’t waive it. But if the seller has one and signs a T-47 affidavit confirming nothing has changed, you may avoid paying about $600 for a new one.

One last Texas detail: property taxes here are billed for the whole year after it ends, and they’re due January 31. If you close late in the year, expect the lender to collect several months of taxes upfront for your escrow account. Budget for it.

Frequently asked questions

Can I use the rent from my new property to qualify for the loan?
Usually only to cancel out that property’s own payment, if you’ve never been a landlord. Once you have a rental history, more of the rent can count.

What’s the most a seller can contribute on an investment property?
On a conventional loan, 2% of the price or appraised value, whichever is lower, no matter how much you put down.

Do I need tax returns for an investment property loan?
If you’re salaried and not self-employed, often not. Pay stubs and W-2s usually cover it.

When should I pay for the appraisal?
In Texas, after your option period ends, once you’re sure you’re moving forward.

Plan the financing before you write the offer

Most problems with a first rental purchase come from the order things were done in, not from the property itself. The seller credit gets asked for before anyone checks the limit, the appraisal gets ordered too early, or the qualifying math doesn’t account for the mortgage on the home you already own.

I’m licensed as both a realtor® and a loan officer, so I plan the offer and the financing together from the start. If you’re considering your first rental in Pearland, Manvel, Iowa Colony or anywhere in the Houston area, reach out to Luxintel Property and I’ll run your numbers before you make an offer.

About the Author

Daniel Lee is a Texas Realtor®, a licensed Mortgage Loan Originator, and the founder of Luxintel Property. He trained as a statistician and uses housing and lending data to help buyers, sellers and investors decide with real numbers instead of guesses. Because he’s licensed on both the real estate and the mortgage side, he plans your offer and your financing together from day one.

Daniel Lee Luxintel Property
(713) 303-8416 daniel@luxintelproperty.com luxintelproperty.com

Daniel Lee, Texas Real Estate Sales Agent, TREC License #0838122
Daniel Lee, Mortgage Loan Originator, NMLS #2714789
Equal Housing Opportunity

Disclosure: This article is for general educational purposes only. It isn’t an offer to lend, a commitment to lend, or legal, tax or financial advice. All examples are hypothetical. Loan programs, guidelines, seller concession limits and interest rates vary by lender and loan type, change often, and depend on credit approval, underwriting and property eligibility. The information is believed accurate as of October 2026. When Daniel Lee acts as both your real estate agent and your loan originator on the same purchase, he may be paid in both roles. You’re always free to choose any agent and any lender.