Understanding Closing Costs in Texas: A 2024 Guide

What Are Closing Costs?

Mortgage closing costs are the fees and expenses you pay when finalizing a real estate transaction. They may pay for attorney services, your mortgage company’s services, and administrative and tax expenses.

Buyer Closing Costs in Texas

Buyer closing costs in Texas depend on the home value, any contingencies in the contract, lender fees, and the home’s size.

Buyer closing costs in Texas include:

• Loan origination fees
• Real estate attorney fees
• Appraisal fees
• Home inspection fees
• Application fees
• Credit report fee
• Title insurance
• Prepaid expenses
• Escrow fees

Mortgage Origination Fees

Loan origination fees pay the cost of processing your loan application, including underwriting, processing, and other administrative tasks. When it comes to the cost, origination fees typically range around 1% of the loan amount. For instance, on a $300,000 loan, you can expect to pay $3,000 in origination fees.

Understanding Origination Fees

Loan origination fees are often negotiable, so it pays to compare offers from multiple lenders. Some lenders may offer to lower or waive these fees in exchange for a slightly higher interest rate. Always ask for a breakdown of what the loan origination fee covers to ensure you’re not being overcharged.

Appraisal Fees

An appraisal fee covers the costs of a professional coming to assess the market value of your dream home. This closing cost ensures that the property is worth the loan amount you are seeking. In 2024, the average appraisal fee in Texas is around $425 for a single-family residence of up to 2,000 sq ft [2].

Importance of Appraisals

Appraisals protect both the buyer and the lender. For buyers, an appraisal ensures that they are not overpaying for the property. For lenders, it provides assurance that the property is adequate collateral for the loan.

If the appraisal comes in lower than the purchase price, you may need to renegotiate the price or make up the difference with a larger down payment.

Title Insurance

Title insurance protects against potential issues with the property’s title, such as undiscovered liens or ownership disputes. In Texas, the cost of title insurance can range from $1,000 to $3,000, depending on the home’s value. It’s a one-time fee that provides peace of mind that the title to your property is clear. You can shop around for your own title company to find the best deal.

Role of Title Insurance

Title insurance involves a thorough examination of public records to ensure that the property is free of encumbrances. This includes searching for unpaid taxes, undisclosed heirs, or fraudulent transfers. The insurance policy covers legal fees and other costs associated with defending against a title dispute.

Both buyers and lenders often purchase title insurance, with lender’s policies being mandatory for financed purchases. This is one of the most important real estate transaction fees, as it prevents you from making a very expensive mistake.

Home Inspection Fees

According to ASHI, 77% of homes receive a check-up from an inspector before they’re purchased. [3] And it absolutely makes sense. Before finalizing a purchase, it’s wise to have the property inspected to identify any potential issues. The cost of a home inspection in Texas averages around $300 to $500, depending on the size and age of the property.

Benefits of Home Inspections

An inspection is not someone you want to save money on, as it can save you from critical issues such as roof problems (seen in a stunning 19% of home inspections), structural damage, faulty wiring, or plumbing problems that may not be visible during a regular viewing. [4]

At the same time, an inspection report can be a useful negotiation tool for every buyer, as it gives you a basis to request repairs or price adjustments. It also helps you plan for future maintenance costs and ensures the property is safe and habitable.

Prepaid Expenses

Prepaid expenses typically include:

• Homeowner’s insurance
• Property taxes
• Escrow fees
• Mortgage insurance (Private mortgage insurance, FHA premium, VA fee)

Lenders often require these payments to ensure that the buyer has the necessary coverage and funds to cover ongoing expenses. The amount can vary based on the home’s value and the timing of the purchase.

Understanding Prepaid Expenses

Prepaid expenses are collected at closing to cover costs that will be due shortly after the sale. For example, you may need to prepay a year’s worth of homeowners insurance premiums or several months of property taxes.

These funds are typically placed in an escrow account managed by the lender, ensuring that these critical expenses are paid on time. Prepaying these costs protects both the buyer and the lender from future defaults.

What Are the Average Closing Costs for a Seller in Texas?

The highest closing cost is the real estate agent commission, which can be as high as 6% of the home’s sale price. Other costs include title transfer fees and property taxes, which vary based on the transaction date. For calculating the typical seller closing costs, we’ll assume the home’s purchase price is $307,038.

Seller Closing Costs in Texas

In general, the seller pays more, and they often need to include repairs in their total sales expenses. While closing costs vary by case, these are typical for Texas sellers:

• Real estate agent fee
• Recording fees
• Attorney fees
• Mortgage payoff
• Title insurance
• Transfer taxes
• Owner’s title insurance
• Title search (shared with the buyer)

Real Estate Agent Commissions

The largest expense for sellers is usually the real estate agent commission. This fee is typically 6% of the sale price, split between the buyer’s and seller’s agents. For a home selling at $307,038, the commission would be $18,422, divided equally between the two agents.

Understanding Agent Commissions

Real estate agent commissions cover the agents’ services, including marketing the property, negotiating with buyers, and managing the closing process. While 6% is a standard rate, commissions are negotiable.

Sellers can sometimes negotiate lower rates, especially if the property is expected to sell quickly or if they use the same agent for buying their next home. Some sellers opt for discount brokers or flat-fee services to reduce commission costs.

Title Transfer Fees

Title transfer fees cover the cost of transferring the property title from the seller to the buyer. These fees are generally lower than other closing costs but are necessary for completing the sale. In Texas, title transfer fees can range from $200 to $500.

Details of Title Transfer Fees

Title transfer fees are paid to the county where the property is located. They cover the administrative costs of updating public records to reflect the new ownership. This process ensures that the transfer of ownership is legally documented and recognized.

While the fees are relatively small compared to other closing costs, they are a mandatory expense in the selling process.

Prorated Property Taxes

Prorated property taxes are a way to share taxes between the buyer and the seller based on how long they have owned the property that tax year. If you sell your home midway through the year, you’ll owe property taxes for the months you owned the property.

Calculating Prorated Taxes

For example, if you sell your home on June 30, you will be responsible for property taxes from January 1 to June 30. That leaves you free from the tax obligation from July 1 to December 31, as that part of the year is the buyer’s concern now.

The exact calculation is based on the local tax rate and the closing date. These taxes are often settled at closing to ensure all obligations are met.

Additional Closing Cost Items

There are certain closing costs that are optional, or they are only paid in certain situations:

• Survey fee – Surveys are done to determine the exact legal boundaries of the property, and they cost between £400 to £1500.
• HOA dues and fee – If you live in a planned community, you can expect to pay a disclosure fee of $200 to $600, as well as any monthly dues.
• Home warranties – The seller sometimes also pays closing costs, such as home warranties, to entice the buyer.
• Document preparation fees – This is usually around $100.
• Flood certificates – It’s usually $20 to $30, and it’s not required if you’re not in a flood zone.
• Prepaid interest – Buyers need to pay interest that accrues from the close date to the end of the first month.

Ways to Reduce Closing Costs

If you’re feeling uncomfortable due to the figures we’ve mentioned above, don’t worry. One thing to know about closing costs is that they’re always negotiable. Before getting a mortgage loan, shop around to cut your expenses. Here are some tips on saving on closing costs.

Negotiating Fees

Buyers and sellers can often negotiate certain fees with their lenders and real estate agents:

• Find lenders who may waive origination fees or offer discounts on other closing costs (although they may increase your interest rate)
• Research typical closing costs in your area and use that information to ask for reductions.
• Maintaining a good credit score.
• Always request a Loan Estimate from multiple lenders to compare costs and identify potential savings.
• You don’t have to use the title company offered by your loan provider.

Shopping Around for Services

Another way to reduce closing costs is to shop around for title companies, home inspections, and appraisals. Here are some tips about service shopping:

• Besides the cost, consider the provider’s reputation, service quality, and customer reviews (especially for home inspectors).
• Request detailed quotes from several providers.
• Look for bundled services that may offer additional discounts.

Closing Cost Assistance Programs

Texas offers several assistance programs to help buyers with closing costs. For example, the Texas Department of Housing and Community Affairs (TDHCA) provides down payment and closing cost assistance to qualified applicants. In 2024, these programs can significantly ease the financial burden of buying a home.

TDHCA Assistance Programs

TDHCA programs offer closing cost assistance which can also be used for down payments. They’re aimed at first-time homebuyers and low-to-moderate-income households:

• My First Texas Home –Up to 2%, 3%, 4%, and 5% of the mortgage loan amount. The program is for first-time homebuyers and veterans.
• My Choice Texas Home – It also amounts to 2%, 3%, 4%, and 5% of the mortgage loan amount. The program is for veterans and repeat home buyers.

SETH Closing Cost Assistance Programs

The housing market is not easy for buyers right now. SETH, or Southeast Texas Housing Finance Corporation, provides closing cost assistance in several Texan counties. It has two programs:

• 5 Star –For repeat and first-time homebuyers with a minimum FICO score of 640.
• MyHome Plus – A forgivable loan for homebuyers with a minimum score of 620.

Employer Assistance

Some employers offer housing assistance as part of their benefits package. This assistance can come in the form of grants or low-interest loans to help employees cover closing costs. These programs can provide additional benefits such as homebuyer education workshops or financial planning services.

As a Seller, Finding Cash Buyers

The seller pays more closing costs than the buyer. When you add in the repair costs, the sales process is not cheap in the slightest.

A real estate transaction can also take months, so the ongoing expenses, such as taxes, utilities, and HOA fees, may be another problem for many homeowners who wish to sell.

While some cash buyers make you pay hidden fees and closing costs, A-List Properties never does.

Need to Sell Your House Without Closing Costs?

If you want to eliminate seller closing costs and sell your home quickly, A-List Properties can help. With us, you don’t have to worry about unpredictable closing costs. You receive just as much as we agreed on, down to the very last cent.

As cash home buyers, we can give you a fair offer and close quickly. Contact us today for a free quote — we can organize real estate transactions in days and often close in less than two weeks.

With A-List Properties, your real estate journey doesn’t have to be stressful and long.

FAQS About Texas Closing Costs

How Much Are Closing Costs on a $200,000 House in Texas?

Closing costs on a $200,000 house in Texas typically range from 2% to 5% of the purchase price. This means you can expect to pay between $4,000 and $10,000. These costs include fees for the loan origination, appraisal, title insurance, and other services required to complete the transaction.

It’s essential to get a detailed estimate from your lender to understand the fees and amounts you will be responsible for at closing.

What Is the Biggest Closing Cost Usually Paid by Sellers?

The biggest closing cost usually paid by sellers in Texas is the agent commission, which typically accounts for 6% of the home’s sale price. For a $200,000 home, this would amount to $12,000. Other significant seller costs include title insurance, which ranges from $1,000 to $3,000, and taxes on the property.

Sellers might also pay for any negotiated repairs or concessions agreed upon during the sale process. These costs can add up, so sellers should budget accordingly.

How Do You Calculate Closing Costs in Texas?

To calculate closing costs in Texas, start with the home’s purchase price, and multiply it with the percentage you expect. Closing costs in Texas are usually between 2% and 5% for buyers and between 6% and 10% for sellers.

Let’s say your total closing costs are 3%. Take the price and multiply it by 0.03%. For a more accurate calculation, obtain a Loan Estimate from your lender, which itemizes expected closing costs.

Do You Pay Closing Costs When Selling to a Cash Home Buyer?

When selling to a cash home buyer, the closing costs are often significantly reduced or even eliminated compared to traditional sales. A-List Properties covers all your closing costs, so the offer you get is exactly how much you receive on closing day.

Sources: [1] Zillow [2] Texas Home Appraisers, [3] American Home Inspectors Training [4] MetroTex