Texas is a popular destination for homebuyers—no state income tax, strong job market, and a relatively affordable cost of living. But there are some Texas-specific costs and considerations you should understand before buying. This guide breaks down property taxes, MUD districts, and hidden costs unique to Texas homeownership.
Key Takeaways
- Texas has no state income tax, but property taxes are higher (typically 2.0%-2.5% of assessed value in DFW)
- Homestead exemption reduces taxable value by $100,000 for school taxes—apply between Jan 1 and April 30
- MUD (Municipal Utility District) taxes add 0.5%-1.5% annually to fund infrastructure in newer developments
- Budget for higher homeowners insurance in Texas ($2,000-$4,000/year) due to weather risks
- Your true monthly cost = loan payment + property taxes + insurance + HOA (if applicable)
Property Taxes in Texas: What You Need to Know
Texas has no state income tax, which is great for your paycheck. But property taxes are higher than most states to compensate for this.
Typical property tax rates in the DFW area:
- Dallas County: 2.0%–2.5% of assessed value
- Tarrant County (Fort Worth): 1.9%–2.3%
- Collin County (Plano, Frisco): 2.0%–2.4%
- Smith County (Tyler): 1.8%–2.2%
Example: On a $300,000 home with a 2.2% tax rate, you’ll pay $6,600 per year in property taxes, or $550 per month.
This is included in your monthly mortgage payment via an escrow account, along with homeowners insurance.
Want to estimate your full monthly payment including taxes? Try the mortgage calculator to see the breakdown.
Homestead Exemption: Lower Your Tax Bill
Once you buy a home and move in, apply for a homestead exemption. This reduces your property’s taxable value, lowering your annual tax bill.
Standard homestead exemption:
- Reduces taxable value by $100,000 for school district taxes
- Additional exemptions may be available at the county and city level
Example: If your home is valued at $300,000 and you claim the homestead exemption, your taxable value for school taxes drops to $200,000, saving you roughly $200–$400 per year depending on your district.
How to apply: File with your county appraisal district between January 1 and April 30 of the year after you purchase. You only need to apply once; it automatically renews each year.
What This Means for Texas Homeowners
The homestead exemption is automatic renewal, but you must file it the first time. Missing the April 30 deadline means waiting another full year to get the savings.
Additionally, Texas has a 10% annual cap on appraised value increases for homesteaded properties. Without the exemption, your property taxes could jump significantly year over year.
MUD Districts: What Are They and Should You Worry?
MUD stands for Municipal Utility District. These are special taxing districts created to fund infrastructure (water, sewer, drainage) in newer developments.
How MUD taxes work:
- MUD districts charge an additional property tax (typically 0.5%–1.5%)
- This is on top of your regular county, city, and school taxes
- The extra tax pays off bonds used to build infrastructure
Example: A home in a MUD district with a $300,000 value and a 1% MUD tax would cost an extra $3,000 per year ($250/month) in taxes.
Should you avoid MUD districts? Not necessarily. Homes in MUD districts are often newer construction with modern amenities. The higher taxes may be offset by lower home prices or newer infrastructure. But it’s important to factor this into your monthly budget.
How to check if a home is in a MUD: Ask your real estate agent or check the property tax statement. MUD taxes are listed separately from county/city/school taxes.
Homeowners Insurance in Texas
Texas homeowners insurance is more expensive than the national average due to weather risks (hail, wind, tornadoes). Expect to pay $2,000–$4,000 per year depending on:
- Home value and location
- Coverage limits and deductibles
- Wind/hail coverage requirements
If you’re buying in a high-wind area or near the coast, windstorm coverage can add significantly to your premium.
Tip: Shop around for quotes before closing. Insurance costs vary widely between carriers, and your lender will require proof of coverage before funding your loan.
Learn more about budgeting for homeownership on the blog or get answers on the FAQ page.
HOA Fees: Another Monthly Cost
If you’re buying in a planned community or condo, you’ll likely pay HOA (Homeowners Association) fees. These range from $50–$500+ per month depending on amenities.
What HOA fees cover:
- Common area maintenance (pools, parks, landscaping)
- Trash and water (in some communities)
- Exterior home maintenance (in condos)
Red flags:
- HOAs with special assessments or underfunded reserves
- Restrictive covenants that limit renovations or rental use
Your lender will review HOA financials during underwriting, and high HOA fees can affect your debt-to-income ratio.
Hidden Costs to Budget For
Beyond your mortgage, taxes, and insurance, expect these one-time and ongoing costs:
At closing:
- Appraisal: $400–$600
- Home inspection: $400–$700
- Title insurance and closing costs: $2,000–$5,000
After closing:
- Ongoing maintenance: Budget 1%–2% of home value per year
- Utilities: Higher in Texas due to summer cooling costs
- Lawn care and pest control (common in Texas)
Putting It All Together
When you’re evaluating what you can afford, don’t just look at the purchase price. Your true monthly cost includes:
- Principal and interest (loan payment)
- Property taxes (including MUD, if applicable)
- Homeowners insurance
- HOA fees (if applicable)
- Utilities and maintenance
Example monthly breakdown for a $300,000 home:
- Loan payment (6.5% rate, 3% down): $1,840
- Property taxes (2.2%): $550
- Homeowners insurance: $250
- HOA fees: $100
- Total: $2,740/month
This is an example for illustration only. Actual costs vary based on credit, income, loan terms, and local tax rates.
Want to see your personalized breakdown? Try the calculator to estimate your monthly payment.
Common Questions About Texas Property Taxes
Do property taxes go up every year? Your home’s assessed value can increase up to 10% annually (if homesteaded), which would raise your taxes. Without homestead exemption, there’s no cap.
Can I protest my property tax appraisal? Yes. You can file a protest with your county appraisal district if you believe your home’s assessed value is too high. Many homeowners do this annually.
Are property taxes deductible? Yes, property taxes are deductible on your federal income tax return (subject to the $10,000 SALT cap).
How I Help
I run these numbers for every client so there are no surprises. During your Discovery Call, I’ll show you:
- Your estimated monthly payment broken down by category
- How property taxes and insurance affect affordability
- What to watch out for (MUD districts, HOA fees, flood zones)
- How much you need for closing costs
Texas homeownership comes with some unique considerations, but with the right guidance, you’ll know exactly what to expect.
Schedule a Discovery Call to review your budget and get a clear breakdown of costs, or use the calculator to estimate your monthly payment.
This article is for general education and is not financial advice. Tax rates, exemptions, and costs are subject to change and individual circumstances.