How Much Are Closing Costs in Texas?
Who Pays Closing Costs in Texas?
Seller Closing Costs in Texas
Buyer Closing Costs in Texas
Shared Closing Costs in Texas
How To Calculate Texas Closing Costs Example
Texas Closing Costs Bottom Line
In Texas, the average buyer closing costs will typically be between 2-6% of a home’s contracted purchase price, while the typical seller closing costs will be between 6-10% of the selling price. However, closing costs vary from transaction to transaction. For example, if a seller doesn't use a real estate agent, their closing costs will be much lower. Similarly, if a buyer doesn't get a mortgage and pays all-cash, their closing costs will be lower.
In Texas, both buyers and sellers pay closing costs. Seller closing costs in Texas typically include the realtor commission, attorney fees, and mortgage payoff. In contrast, the buyer closing costs will consist of loan application and origination fees, inspection fees, appraisal fees, and title insurance, among other things.
Although sellers in Texas usually have fewer things to pay for, their closing costs are typically more expensive, primarily due to the real estate commission, which is usually the highest closing cost.
Sometimes either party will offer to pay additional closing costs as an incentive to get the transaction to close. For example, in Texas, a seller can offer to pay up to 9% of a buyer’s purchase price in closing costs.
- Real Estate Commission
- Attorney Fees
- Homeowner Association Documents
- Reconveyance Fees
- Prorated Property Taxes
- Outstanding Bills
- Mortgage Payoff
- Seller Concessions
1. Real Estate Commission
Real Estate Commission fees are typically paid by the seller and are usually between 5% and 6% of a home’s selling price. This commission is split evenly between the buyer’s and seller’s agents unless otherwise negotiated.
2. Attorney Fees
In some states, closing attorneys are used instead of title/escrow companies and charge fees to handle the transaction. While Texas doesn’t require an attorney, they are sometimes used to help prepare closing documents, and sellers usually pay for this service.
3. Homeowner Associations Documents
If you live in an area with a Homeowners Association (HOA), you’ll be required to give your buyer a copy of the bylaws. Additionally, you’ll need to obtain an estoppel letter and pay any owed fees or dues before closing the sale.
4. Reconveyance Fees
Reconveyance fees are necessary to remove any liens your lender has placed against your home.
5. Prorated Property Taxes
Several states (Texas included) require property taxes to be paid in arrears. This means a homeowner’s property taxes are paid after a year has finished instead of up-front. So, for example, a seller selling their house in June of 2022 will owe state property taxes for the six months they lived in the house during the year. These property taxes will be collected at the close of the sale.
6. Outstanding Bills
Utilities and service fees, such as wifi, water, trash, and power, must be paid in full before closing the sale of your home.
7. Mortgage Payoff
Any remaining mortgage balance must be paid in full from the profits of your sale.
8. Seller Concessions
Sellers will often offer to pay some closing costs to incentivize the buyer to close. If you have provided concessions, they will need to be paid at the closing table.
- Loan Application and Origination Fees
- Credit Report Fee
- Home Inspection & Appraisal
- Land Survey
- Prepaid Costs
- Title Insurance
- Discount Points
1. Loan Application and Origination Fees
Loan application and origination fees are given to a buyer from their lending institution. These fees are associated with processing loan paperwork, setting up a loan, and any other menial tasks your lender may have provided.
2. Credit Report Fee
Another lender’s fee, the Credit Report Fee is the cost associated with pulling your credit report throughout the loan application process. Lenders will pull your report several times throughout the home-buying process to ensure no significant changes might indicate your loan standing has changed.
3. Home Inspection & Appraisal
To protect both their interest and their buyer, a lending institution will order two pieces of information: the inspection and the appraisal. These reports will ensure that a potential home is in good, livable condition and that its contracted purchase price is market-appropriate. Lenders will include the fees for these items in a buyer’s closing costs.
4. Land Survey
A survey tells a landowner exactly where their property lines begin and end. This is essential information for homebuyers, especially when buying undeveloped land.
5. Prepaid Costs
Prepaid closing costs include fees associated with escrow accounts, prepaid interest, and homeowner’s insurance. If a buyer’s down payment is less than 20% of the contracted purchase price, Private Mortgage Insurance (PMI) may also be added to this list.
6. Title Insurance
In the event that a title is somehow defective, title insurance will protect the buyer from any losses. Issues that can cloud a title include liens, outstanding taxes, unpaid dues, and adverse possession claims. The price of title insurance will vary, but it is generally considered a good idea.
7. Discount Points
Sometimes referred to as prepaid interest, Mortgage Discount Points are a great way to lower a home loan’s interest rate. Essentially, a lender will agree to reduce a mortgage’s interest to a discounted amount, provided that the buyer pays an up-front fee. This fee is rendered along with all other closing costs at the closing table.
It is important to note that, while some states charge buyers a fee to record the purchase or sale of real property, Texas does not. Additionally, Texas does not impose a transfer tax on its residents.
In Texas, buyers and sellers can choose to share some closing costs. Examples of shareable fees include title searches, municipal lien searches, home warranties, and notary fees.
To find your estimated closing costs, multiply your contracted purchase price by your estimated closing cost percentage. For example, if a home costs $300,000, and closing costs are estimated at 5%, multiply $300,000 by .05. This will give you an estimated closing cost of $15,000.00
Closing costs can add a significant amount to the up-front expense of purchasing or selling a home. While there is little to be done about sellers’ costs, Texas buyers usually have some options. Be sure to ask your lender about Texas’ closing cost assistance and other available programs to help with the burden of these fees.