What Are Closing Costs?
Closing costs are expenses related to completing a real estate transaction. They are meant to compensate those involved in the deal, including mortgage lenders, real estate agents, and the title company.
Total closing costs are typically estimated as a percentage of the home’s purchase price, though certain closing costs are fixed by the agency receiving the funds.
Who Pays Closing Costs?
When considering who pays closing costs in Texas, the buyer and the seller typically pay at least something. However, it’s common for seller closing costs to be higher due to the real estate commission fees.
The closing process is flexible, and who pays Texas closing costs will depend on negotiations between the parties. In a buyer’s market, seller closing costs may be higher, while if the current market trends more toward sellers, the buyer closing costs could be higher.
Seller’s Typical Closing Costs
In many cases, seller closing costs are higher, though this may not always be true. You may pay more because of the seller concessions you agree to, which help sell the home in a slow market; however, if the market is firmly in the seller’s favor, you and your agent may be able to negotiate concessions from the buyer.
Real Estate Agent Commissions
Most of a seller’s closing costs come from the real estate agent’s commission fees. The seller is typically responsible for real estate commissions for themselves and the buyer. This is usually between 5% and 6% of the final sale price in Texas.
Title Insurance
The seller pays for title insurance, which protects them from future arguments over whether they had the legal right to sell the property. Title claims can be a headache that necessitates working with a real estate attorney, so paying this upfront can save you needless litigation in the future.
Title insurance typically starts at $5.27 per $1,000 of home value.
Escrow Fees
Escrow is money held by the loan or title company in an escrow account until the transaction is completed. This helps secure everyone’s interests during the sale process.
If the buyer backs out, depending on how the contract is worded, the money may either go back to the buyer or to the seller to compensate them for the inconvenience.
Escrow fees are paid by both the buyer and the seller. They are generally about 1% to 2% of the total home price.
Property Taxes
Sellers must pay prorated property taxes that cover the length of time that they lived in the home that year. Your property tax is typically paid in advance to the relevant government agency, and you only have to pay for the percentage of the total fees that cover your residency.
Home Warranty
These closing costs include optional coverage that helps protect the buyer from costly and unexpected repairs. It’s generally included as a seller concession that will help ensure the buyer goes through with the deal.
Home warranties generally cost around $692 annually.
Outstanding Liens or Mortgages
All unpaid balances on your property must be settled before the sale can go through. This includes any liens on the property from unpaid property tax and the remaining balance of the mortgage, which will be deducted from your earnings at the sale.
You will need to pay any outstanding HOA fees from the time you resided on your property, and many homeowner’s associations will charge you a fee for transferring ownership of the home to another owner.
Attorney Fees
While working with an attorney to sell a home in Texas is not required, it is always a good idea to have a real estate lawyer look at the contract and ensure that you’re getting a fair deal. Attorney fees are typically hourly, averaging about $342 per hour.
Buyer’s Typical Closing Costs
Buyer closing costs lean more toward mortgage loan-related fees, such as document preparation fees, rather than paying for real estate agent services. That includes appraisal fees,
Loan Origination Fees
The loan origination fee compensates the mortgage lender for the expenses of completing all the paperwork to open your loan. These lender fees can include notary fees, which legitimize all the paperwork, and courier fees for transporting sensitive documents from one office to another.
If you don’t provide a 20% down payment on a conventional loan, you will need private mortgage insurance, which protects the lender in case you default. While this is generally paid annually until your loan-to-balance ratio drops below 80%, some lenders will allow you to pay it in a lump sum upfront.
You may also pay discount points, which help reduce your mortgage interest for an upfront expense.
Appraisal Fee
The appraisal assures the lender that the home is worth the sales price. A qualified appraiser assesses the home and determines its market value. In Texas, appraisal fees vary from $425 to $650, depending on the size of the home.
Credit Report Fee
Your lender will require a credit report to ensure you are a qualified buyer. This requires ordering reports from the three credit reporting bureaus and assessing your credit history. The credit bureaus can charge up to $14.50 for a report.
Title Search and Insurance
Title search fees are paid to double-check that the seller has the legal right to sell the property, which will prevent frustrating title contestations in the future.
The seller and the buyer pay for this service, but for different reasons: the seller is protecting themselves from litigation, while the buyer is protecting the lender.
Title searches cost around $100 and $250; title insurance starts at $5.27 per $1,000 of home value.
Home Inspection Fee
The buyer’s closing costs include a home inspection, which the lender requires to ensure they are underwriting a home in good condition. The average costs in Texas for a home inspection vary between $325 and $425.
Escrow Fees
Part of the total sale will be held in escrow by a neutral third party to protect the interests of both the buyer and the seller. Depending on why the transaction was canceled, this money may be returned to you if the deal falls through, or it may go to the seller.
If you do close on the home, this expense will be applied to your first mortgage payment. It’s generally about 1% to 2% of the total purchase.
Survey Fee
Surveys are done to confirm the property boundaries and check that there aren’t any encroachments that must be rectified before the sale can go through. The size of the property will impact the total cost, which can range from $376 to $768.
Prepaid Interest
Your final closing costs include prepaid interest, which covers the interest rate from the closing date to the first mortgage payment. The amount will depend on the size of your loan and your rate. To know how much you will be paying, look at your loan paperwork and see what you’d be paying in interest by month.
Homeowners Insurance
While homeowners’ insurance is not required by law in Texas, it is always a good idea to have it, as it will protect you should a sudden home expense like water damage or a fire occur.
Your premium will vary depending on what company you use, but because Texas is prone to wildfires and other extreme weather events, the average is around $4,400, which is much higher than in other states.
Property Taxes
As with the seller, you must pay a prorated property tax after you take ownership of the property. How much you will pay depends on the appraisal of the property and the specific rates in your jurisdiction.
Shared Closing Costs
In many cases, both the buyer and the seller will pay closing costs for certain parts of the transaction, though it’s possible to negotiate so that the other party pays more. These are some of the closing costs that will generally be split between the parties.
Escrow Fees
Escrow fees protect all parties because a neutral third party holds on to a portion of the funds. The seller and the buyer collectively decide who will pay for the escrow.
Title Insurance
Title fees may be split between the buyer and seller, or one may pay all of them, depending on what the two parties agree upon. This expense protects all the parties from expensive litigation should it be found that the seller wasn’t legally allowed to sell the property.
Recording Fees
Transfer of ownership must be recorded with the county and will be made public record. The recording fee can be up to $156, but it is generally a relatively small sum.
Transfer Taxes
While Texas does not impose transfer taxes, some jurisdictions may choose to have levies or other costs associated with property transfers.
This is a negotiable expense, as neither the buyer nor the seller is required to cover this part of closing costs.
Closing Costs for Specific Situations
Closing costs may be reduced in certain circumstances, such as if no real estate agents are involved or if the deal is done in cash. This can significantly reduce expenses for everyone involved, though there may still be some costs.
Cash Transactions
Cash transactions significantly reduce closing costs, especially buyer closing costs, because buyers do not need to pay any origination fees to their lender. However, other costs will still apply, including a title search fee and recording fees.
For Sale By Owner (FSBO)
For sale by owner means that the seller represents themselves and does not involve realtors. This reduces the costs for the seller because they won’t need to pay any commissions for their realtor.
However, the buyer may still choose to be represented by an agent, and the seller generally pays for this. If no agents are involved at all, it’s good practice to have an attorney look over the contract, which will incur an hourly expense. Buyers and sellers may choose to split attorney fees, or each may have their own attorney.
The buyer will still have certain closing costs, including those required by their lender, and both parties will need to pay things like property taxes, HOA fees, title searches, and the recording fee required by the county.
Tips for Minimizing Closing Costs
Once you understand who pays closing costs in Texas, the next question is how to reduce your expenses so that you can save money. While some closing costs are fixed, such as your property taxes, it is possible to reduce others through negotiations.
Depending on whether you are the buyer or seller, there are various ways to reduce closing costs.
Shop Around for Lenders and Title Companies
For the buyer, the lender that they choose can have a significant impact on how much they pay, so looking for a lender with low fees can be an excellent way to save money.
Additionally, there is no requirement to use the title company that the lender suggests. You can significantly reduce closing costs in Texas by seeking out title companies that have reduced fees.
Negotiate with the Seller
While the seller generally pays more closing costs than the buyer, it is sometimes possible to get them to pay all or most of your closing costs, too. Working with a realtor can help tremendously in this process, as they will be familiar with what concessions are common practice.
Consider a No-Closing-Cost Mortgage
Paying closing costs can take a significant chunk out of a buyer’s budget, but some lenders will provide no-closing-cost mortgages.
This rolls your closing costs into your loan so that you can pay less upfront. However, you must note that this will increase your loan balance, and you’ll be paying more over time than you would have if you were paying upfront.
Additionally, some lenders offer closing cost assistance programs that can help reduce this burden for home buyers.
Sell to a Cash Home Buyer
A cash home buyer is an excellent way to reduce closing costs in Texas. Companies like A-List Properties will pay all the closing costs associated with the deal, meaning that the seller keeps every penny of their all-cash offer. Because we don’t work with realtors, there are no commissions to pay.
How To Get A Fair And Fast Offer For Your Texas Property
If you’re overwhelmed by the prospect of paying closing costs in Texas, A-List Properties has a solution: a cash offer from a highly respected cash home buyer. We can close on your property in less than 14 days, all without you needing to do any repairs, inspections, appraisals, or cleaning.
Because we don’t work with real estate agents and instead buy directly from sellers, there are no commissions to speak of, which can save you thousands of dollars. There are no hidden fees; our services are entirely free to use.
If you need to sell your home fast and don’t want to pay closing costs, contact us at 972-526-7042 or request a quote online – completely free of charge.