How Much Are Closing Costs in Texas & Who Pays Them?

Table of Contents

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

How Much Are Closing Costs in Texas?

In Texas, the average buyer closing costs will typically be between 2% to 6% of a home’s contracted purchase price, while the typical seller closing costs will be between 6% to 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 you're buying a house in Texas and paying all cash, your closing costs will be lower due to not having to pay closing costs associated with getting a mortgage. 

Who Pays Closing Costs in Texas?

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.

Seller Closing Costs in Texas

1. Real Estate Commission
2. Attorney Fees
3. Homeowner Association Documents
4. Reconveyance Fees
5. Prorated Property Taxes
6. Outstanding Bills
7. Mortgage Payoff
8. 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. When you sell your home or pay off your mortgage, the lender releases their claim on the property through a document called a reconveyance or release of lien. This process charges a fee known as the reconveyance fee, which covers the administrative costs associated with preparing and recording the necessary paperwork to clear the lien from the property's title.

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. These outstanding bills could also include property taxes, homeowners association (HOA) dues, and any outstanding mortgage payments. Unresolved property taxes can lead to complications during the closing process, potentially delaying or even jeopardizing the sale.

7. Mortgage Payoff

Any remaining mortgage balance must be paid in full from the profits of your sale. The mortgage payoff is handled by the closing agent or attorney involved in the transaction. They will coordinate with your lender to obtain the exact payoff amount, which may differ slightly from the outstanding balance due to accrued interest up to the date of payoff.

Once the payoff amount is determined, it will be deducted from the proceeds of the sale before disbursing funds to all relevant parties, including the seller, real estate agents, and any other parties entitled to payment.

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.

Seller concessions can cover:

• Property taxes

• Discount points
• Attorney fees

• Appraisal fees

• Title insurance

• Lender origination fees

• Credit report fees

• Inspection fees

• Seller credits for repairs

Although seller concessions can reduce closing costs upfront, they may result in a higher loan amount over time.

Buyer Closing Costs in Texas

1. Loan Application and Origination Fees
2. Credit Report Fee
3. Home Inspection & Appraisal
4. Land Survey
5. Prepaid Costs
6. Title Insurance
7. 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.

Loan application and origination fees can vary depending on the lender, the type of loan, and the specific terms of the mortgage agreement. Typically, these fees can range from 0.5% to 1% of the total loan amount.

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 land survey tells a landowner exactly where their property lines begin and end. This is essential information for homebuyers, especially when buying undeveloped land. For homebuyers, especially those purchasing undeveloped land or considering property improvements, a survey is invaluable. It not only maps your property line, confirming the exact size and dimensions of the property but also helps identify any potential issues or discrepancies that could affect the use or value of the land.

Typically a land survey costs between $200 and $800.  

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.

Shared Closing Costs in Texas

In Texas, buyers and sellers can choose to share some closing costs.

Examples of shareable fees include:

Title searches: Ensures that the property's title is free from any encumbrances or legal issues that could cloud ownership rights.

Municipal lien searches: Uncovers any outstanding debts or liens against the property, ensuring that the buyer receives a property free from any undisclosed financial burdens

Home warranties: Provides coverage for certain repairs or replacements of major home systems and appliances.

Notary fees: Certifies legal documents during the closing process, are another example of closing costs that can be shared between buyers and sellers.

How to Calculate Texas Closing Costs Example

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

Texas Closing Costs Bottom Line

Closing costs can add a significant amount to the up-front expense of purchasing or selling a home. For buyers, it ranges from 2-6% and for sellers, it falls between 6-10%. Buyers can consider seller concessions or shared closing costs to help reduce their out-of-pocket expenses and make homeownership more affordable.

It’s also crucial to address any outstanding bills, such as property taxes, homeowners association dues, and mortgage payments, before closing to avoid delays or complications. 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.