Veteran couple reviewing iQRATE Mortgages VA loan documents.

Texas Tax Exemption for Your Houston & Austin VA Loan

Q: What are the property tax exemption amounts for disabled veterans in Texas?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: What special property tax exemption is available for a veteran with a 100% disability rating?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: How does a veteran's tax exemption help with qualifying for a VA loan?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: What documents are needed to use a Texas property tax exemption for a mortgage application?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: What happens if I apply for the veteran property tax exemption after my loan has closed?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: Are active-duty military members eligible for this specific Texas property tax exemption?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: What are some common mistakes to avoid when using this tax exemption for a VA loan?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

Specialized In Jumbo Loans, Investor Loans, DSCR Loans, Non-QM Financing, Commercial Mortgages, and Tax-Informed Lending Strategies

Published By

David Ghazaryan

Owner / Broker / Banker

Contact Me At

(702) 766-3744

NMLS 1486726

Let's Connect

TL;DR

This guide explains how Texas property tax exemptions for disabled veterans can significantly impact your home buying journey. Key takeaways include:

Property Tax Exemptions: Texas provides substantial property tax exemptions based on a veteran's VA disability rating, which directly reduces the estimated monthly housing payment (PITI).
Increased Borrowing Power: By lowering your projected monthly taxes, these exemptions decrease your debt-to-income (DTI) ratio, allowing lenders to potentially qualify you for a larger VA loan amount.
Critical Process and Timing: To maximize these benefits, it is crucial to provide the correct documentation to your lender before closing and understand the application process with the county appraisal district.

Learn more about this in this YouTube Video: How Texas Disabled Vet Property Tax Exemptions Help You Buy A Home

Veteran Property Tax Exemptions in Houston and Across Texas

Texas offers some of the most generous property tax exemptions in the country for its disabled veterans, a benefit that directly impacts your wallet when buying a home. These exemptions are not automatic; you must apply for them, but they can drastically lower your monthly mortgage payment. The amount of the exemption is tiered based on the disability rating assigned by the U.S. Department of Veterans Affairs (VA).

Here’s how the exemptions break down for qualifying disabled veterans:

10% to 29% Disability Rating: An exemption of $5,000 from your property's assessed value.
30% to 49% Disability Rating: An exemption of $7,500 from your property's assessed value.
50% to 69% Disability Rating: An exemption of $10,000 from your property's assessed value.
70% to 99% Disability Rating (and not 100%): An exemption of $12,000 from your property's assessed value.
100% Disability Rating or Unemployability: A total exemption from paying property taxes on your homestead.

This 100% exemption is a game-changer for veterans purchasing a home in competitive markets like Austin. It completely eliminates the 'T' (taxes) from your PITI (Principal, Interest, Taxes, Insurance) payment, which is the core component lenders use to determine your loan qualification.

How Lenders Factor Exemptions into a VA Loan

When you apply for a VA loan, lenders calculate your debt-to-income (DTI) ratio to assess your ability to repay the mortgage. Your DTI is your total monthly debt payments divided by your gross monthly income. A key part of this calculation is the estimated monthly mortgage payment, or PITI. By reducing the 'T' portion of this payment, your overall PITI decreases, which in turn lowers your DTI ratio.

Let’s look at a practical example in Austin:

Home Price: $450,000
Annual Property Taxes (without exemption): Approximately $8,100 (1.8% rate)
Monthly Tax Payment (without exemption): $675

Scenario 1: Veteran with No Exemption Applied

Principal & Interest (P&I): ~$2,700
Taxes: $675
Insurance: $150
Total Estimated PITI: $3,525

Scenario 2: Veteran with a 100% Disability Rating

Principal & Interest (P&I): ~$2,700
Taxes: $0
Insurance: $150
Total Estimated PITI: $2,850

Veteran reviewing mortgage documents with property tax exemption benefits.

The lender can now use the lower $2,850 payment to calculate your DTI. This $675 monthly difference is significant. It shows the lender you have more disposable income to handle the mortgage, making you a stronger borrower and potentially allowing you to qualify for a more expensive home.

Disability Ratings and VA Loan Qualification

A common point of confusion for veterans in cities like San Antonio is how their disability rating itself impacts the loan. It's crucial to understand that lenders do not approve or deny you based on having a disability rating. Instead, they look at two financial factors that stem from it:

Tax-Exempt Income: The monthly disability compensation you receive is non-taxable income. Lenders can 'gross up' this income, meaning they can count it as being worth more than its face value (often by 25%) because no taxes are taken out. This boosts your total qualifying income. (The data, information, or policy mentioned here may vary over time.)
Property Tax Exemption: As detailed above, the rating grants you a specific property tax exemption, which lowers your projected monthly housing costs.

So, while a 70% rating doesn't directly impress an underwriter, the $12,000 property tax exemption and the 'grossed up' disability income it provides are powerful tools that directly and positively affect your mortgage qualification.

Required Documents for Your Mortgage Application

To ensure your lender can factor in the tax exemption before you close, you must provide the correct documentation proactively. You cannot assume the title company or lender will automatically know about your status. You will need:

Your VA Certificate of Eligibility (COE): This is standard for any VA loan and proves you have the entitlement for the loan itself.
VA Award Letter: This official letter from the VA clearly states your disability rating and the monthly compensation amount. This is the primary proof of your rating.
Texas Comptroller Forms: You will need to complete and submit the required forms to the appraisal district of the county where you are buying the home, primarily Form 50-114 ('Application for Residence Homestead Exemption') and Form 50-135 ('Application for Disabled Veteran's or Survivor's Exemption'). Getting a letter from the county appraisal district confirming receipt and approval is the gold standard for your lender.

Stack of required documents for a VA mortgage application including a Certificate of Eligibility.

Bringing these documents to your loan officer at the very beginning of the process is essential for a smooth underwriting experience.

Using a Tax Exemption to Qualify for a Larger Home Loan

So, can this exemption really help you buy a more expensive home? Absolutely. By lowering your DTI, it frees up room in your budget, which translates directly to higher purchasing power.

Consider this comparison for a veteran buying a home in Houston with a gross monthly income of $8,000 and a common lender DTI benchmark of 41% for VA loans. (The data, information, or policy mentioned here may vary over time.)

Maximum Monthly Housing Payment Allowed (PITI): $8,000 * 0.41 = $3,280

Without the 100% Tax Exemption:

Let's assume a $400,000 home has a P&I of $2,400, insurance of $140, and taxes of $600.
Total PITI: $3,140. This fits within the $3,280 limit.
The veteran qualifies for the $400,000 home.

With the 100% Tax Exemption:

The $600 monthly tax payment is eliminated.
The lender now has an extra $600 of room to work with before hitting the $3,280 DTI cap.
That extra $600 in payment ability (P&I) could translate to roughly $90,000 to $100,000 more in loan amount, depending on the interest rate.
The veteran could now potentially qualify for a $490,000 home, all thanks to the exemption being properly applied during underwriting.

What if the Exemption is Applied After Closing?

This is a critical timing issue. If you close on your loan without the exemption being factored in by the lender, your initial monthly payments will be higher because they will include an estimated amount for property taxes, which is paid into an escrow account. You can still apply for the exemption with the county appraisal district after you own the home.

Once the county approves your exemption, they will notify your mortgage servicer. The servicer will then stop collecting property taxes for your escrow account. This will eventually lead to an 'escrow overage', and you will receive a refund check. Your monthly payment will then be lowered going forward. However, this does not help you with your initial loan qualification. To gain the benefit of a higher purchase price, the exemption must be documented and used by the underwriter before you sign the final closing documents.

Rules for Active Duty Military vs. Veterans

While active duty military personnel receive many benefits, including protections under the Servicemembers Civil Relief Act (SCRA), these specific Texas property tax exemptions are tied to a post-service VA disability rating. Therefore, most active duty members purchasing a home in Dallas would not be eligible for this particular benefit unless they are also a veteran with a qualifying disability rating from a prior service period.

Common Mistakes with Texas VA Loans and Tax Exemptions

Navigating this process can be tricky. Here are some common pitfalls to avoid:

Assuming it's Automatic: Never assume the lender, title company, or real estate agent will handle the exemption for you. You must be proactive in providing the documentation.
Waiting Until After Closing: As mentioned, this is the biggest mistake. You lose the primary benefit of increased purchasing power during qualification.
Providing the Wrong Documents: A simple printout from your eBenefits account is often not enough. You need the official VA award letter and proof of filing with the county appraisal district.
Misunderstanding County Deadlines: Each county appraisal district has its own deadlines for filing for exemptions. Be sure to check with the specific county where you are buying (e.g., Harris County for Houston, Travis County for Austin). (The data, information, or policy mentioned here may vary over time.) Navigating Texas property tax exemptions and VA loans can feel complex. If you're a veteran in Houston or Austin, working with a mortgage strategist who understands these specific rules can ensure you maximize your benefits and secure the best possible loan.

Putting these powerful Texas veteran benefits to work on your home loan can make a significant difference. If you're ready to see how your eligibility translates into real purchasing power, apply now and connect with specialists who can guide you through maximizing your qualifications.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.