How Much Are Closing Costs in Texas? A Comprehensive Guide

Home Closing Costs in Texas

Navigating home closing costs in Texas? This comprehensive guide breaks down each component of these costs so you'll know how to prepare for your next Texas home purchase or sale without any surprises.

Short Summary

  • In Texas, seller closing costs typically range from 6-10% of the property’s contracted purchase price, and buyer closing costs generally range from 2-6%, based on the size of the mortgage.
  • Closing costs in Texas include loan origination fees, appraisal fees, title insurance, property taxes paid in arrears, and potentially additional expenses like homeowner’s insurance and annual utilities.
  • Texas offers closing cost assistance programs such as SETH and Home Star for eligible buyers and negotiating fees, and utilizing online calculators can help estimate and potentially reduce closing costs.

Breaking Down Texas Closing Costs

A real estate agent discussing closing costs with clients

While the term ‘closing costs’ may seem daunting, it’s actually more straightforward than you might believe. These are fees for services necessary to transfer home ownership from the seller to the buyer. So yes, both the buyer and seller are responsible for paying these costs. In Texas, seller closing costs generally range from 6-10% of the selling price, while buyer closing costs typically range between 2-6% of the home’s contracted purchase price.

The total amount of closing costs can be affected by the size of the mortgage loan; a larger loan tends to result in a smaller percentage paid. The final closing cost figures are disclosed to both the buyer and seller at least three business days before closing.

Buyer's Share of Closing Costs

As a buyer, your closing costs in Texas would generally include:

  • Loan origination fees: cover the expenses related to processing paperwork and establishing a loan
  • Appraisal fees: payments for a professional to assess the home’s value
  • Title insurance: safeguards against title defects

In addition to these, be ready for prepaid closing costs, which typically include:

  • Escrow Fees (Administered by the Title Company): Charges for managing escrow account, ensuring secure transaction and document handling.
  • Prepaid Interest: Interest paid in advance, covering the period between closing and the first mortgage payment.
  • Homeowner’s Insurance: Insurance policy protecting against damages to the home and property.
  • Private Mortgage Insurance (PMI): Insurance required for down payments less than 20% to protect lender from default.

Some buyers and sellers may also work with a real estate attorney to help navigate the closing process, which can add to their total closing costs.

Seller's Share of Closing Costs

Considering the seller’s share, sellers in Texas generally incur closing costs that range from 6-10% of the home’s purchase price, the largest of which is agent or broker commissions. Remember that all real estate agent services and fees are negotiable.

In addition to real estate agent commissions, sellers are generally responsible for covering title fees, transfer taxes, owner’s title insurance expenses, recording fees, and attorney fees.

List of Common Closing Costs in Texas

Below is a table that shows the most common closing costs in Texas, indicating whether they're typically paid by the buyer, the seller, or shared between both. It's important to note that some of these can be negotiated between the buyer and seller during the sale process.

Closing Cost ComponentPaid By BuyerPaid By SellerShared
Loan Origination Fees
Appraisal Fees
Title Insurance
Prepaid Closing Costs (Escrow, etc.)
Prepaid Interest
Homeowner’s Insurance
Private Mortgage Insurance (PMI)
Real Estate Attorney Fees (optional)
Real Estate Commissions
Title Fees
Transfer Taxes
Owner’s Title Insurance Expenses
Recording Fees
Attorney Fees
Property Taxes
Title Search
Mortgage-Related Fees (Discount Points)
Credit Report Fee

The Role of Property Taxes in Texas Closing Costs

Property Tax Bill

In Texas, property taxes are paid in arrears, meaning they are paid at the end of the home loan process during closing. This payment supports various public services within the community, including:

  • city
  • county
  • schools
  • hospitals
  • PIDs (public improvement districts)

Property taxes are determined by multiplying the home’s assessed taxable value by the local tax rates and may include school district taxes, hospital districts, and Municipal Utility District taxes (MUDs). The typical property tax rate in Texas is around 2.0%, but is often higher when served by a MUD or is located within a Public Improvement District (PID). As they are paid in arrears, these taxes must be considered when calculating the financial obligations during the closing of a home loan, including prorated property taxes.

Title Insurance: A Vital Component of Closing Costs

Title insurance policy illustration

Title insurance, too, plays a significant role in the closing costs in Texas. It safeguards buyers and lenders against potential losses resulting from flawed titles. In Texas, it has been traditional for sellers to purchase title insurance for the buyer. However, there is a growing trend of buyers paying for their own policies.

The cost of title insurance is determined by the property’s value, with basic premium rates that vary based on this value. You might come across a term called ‘simultaneous issue discount’, which refers to a reduced rate offered for a loan or owner’s title insurance policy when it is issued for the same property or loan at the same time as another policy.

The Impact of Mortgage-Related Fees on Your Closing Costs

Texas closing costs can also be considerably affected by mortgage-related fees. These include loan origination fees, which are charges that the lender imposes on you for creating a new loan. In Texas, these fees typically range between $300 and $500 and usually account for 1% of the loan amount, although this varies greatly depending on the type of mortgage.

Another component of mortgage-related fees is discount points. These upfront fees can lower a mortgage’s interest rate, resulting in reduced monthly payments.

Lastly, there is the Credit Report Fee, which covers the expense of pulling your credit during the loan application. This also contributes to the overall costs that you need to pay.

Additional Closing Expenses to Anticipate

Beyond the mentioned costs, you should be aware of a few more closing costs when buying or selling a home in Texas.

  • Inspection fees: The cost for a home inspection in Texas typically ranges from $300 to $500. Usually, buyers pay inspectors at the time of inspection. However, in a few smaller Texas markets, while uncommon, sometimes the buyer can pay for an inspection at closing.
  • Survey fees: If the seller does not have a recent survey, the buyer may need to pay for a new one. A survey is a drawing of the property that shows the boundaries and improvements. The cost for a survey in Texas typically ranges from $350 to $500.
  • Document preparation fees: These are fees charged by the lender or a third party for preparing the legal papers needed in the transaction. The cost can vary, but it typically ranges from $200 to $400.
  • Flood certification fees: If your property is in a flood zone, you may need to pay for a flood certification. This certification verifies the flood zone of the property and is required by most lenders. The cost for a flood certification is usually around $20 to $30.
  • HOA Dues: Prorated Homeowners Association (HOA) dues may be required to be paid upfront at closing. The amount varies depending on the specific community and the services provided.
  • Home Warranties: The cost of a home warranty typically ranges from $420 to $745 per year, varying based on the provider and the specific plan chosen, with the cost usually paid by the seller.

Closing Cost Assistance Programs in Texas

A residential property with a sold sign in front

Texas provides closing cost assistance programs like SETH and Home Star, which are designed for eligible homebuyers to alleviate upfront expenses. SETH offers two primary programs: 5 Star and GoldStar, which offer closing cost assistance in specific communities.

There are other programs as well, such as the My First Texas Home Program and the My Choice Texas Home program, which offer closing cost assistance to first-time home buyers, veterans, and all home buyers, respectively. To qualify for these programs, individuals must meet specific criteria related to income, home sales price, credit score, and other factors.

Negotiating Closing Costs in Texas

Through negotiation, you may be able to decrease your closing costs. In Texas, both buyers and sellers can negotiate the closing expenses. This flexibility allows for potential savings for both parties involved. Some of the effective strategies for this include:

  • Comparison shopping from your loan estimate
  • Not overlooking lender fees
  • Understanding what the seller pays for
  • Considering a no-closing-cost option

Keep in mind, certain fees within the closing costs are open to negotiation. Therefore, it is crucial for you to have a good understanding of these costs to negotiate with the lender and potentially reduce the more flexible fees.

Estimating Your Closing Costs: Tools and Calculators

Online calculators and tools are available for estimating your closing costs in Texas. These tools consider factors such as sales price, realtor commission rates, and local market conditions to estimate your closing costs.

Remember, while these calculators can estimate the fees you’ll pay at closing, they may not account for all possible costs and fees. So, the actual closing expenses may vary. Your lender will provide you with written estimated closing costs more than once during the loan process.

Summary

It’s important to remember that closing costs are a significant part of any property transaction in Texas. They encompass a myriad of fees, from loan origination to title insurance, property taxes, and more. Both buyers and sellers share the responsibility for these costs, which can be negotiated to some extent.

Understanding and planning for closing fees is integral to the home buying or selling journey. Doing so can ensure a smoother transaction and potentially save money. Remember, knowledge is power!

Frequently Asked Questions

How much are buyer's closing cost of $250,000 house in Texas?

Buyer closing costs for a $250,000 house in Texas can range between $7,500 to $15,000, typically making up about 3% to 6% of the home's selling price, although the actual cost may vary.

Who pays closing costs in Texas?

In Texas, both buyers and sellers have closing costs to cover. However, sellers usually absorb most of the costs, including real estate agent commissions. Buyers can also negotiate to have the seller pay a portion of their closing costs.

What are some of the common closing cost items that can be shared between buyers and sellers in Texas?

In Texas, common closing cost items shared between buyers and sellers include title searches, municipal lien searches, home warranties, and notary fees. The parties may also negotiate prepaid HOA dues and related membership initiation fees, if any.

Can closing costs be included in the mortgage in Texas?

Yes, some closing costs can be rolled into the mortgage, but this depends on the lender's policies and the type of loan.

How long before closing are the final closing costs disclosed?

Final closing cost figures must be disclosed to the buyer and seller at least three business days before the closing date. These disclosures are required by federal law.

What assistance programs are available to help with closing costs in Texas?

In Texas, eligible homebuyers can seek assistance with closing costs through programs such as SETH and Home Star, offering relief from upfront expenses.

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