Congratulations! You are about to make your dream of being a homeowner come true. To turn your dream into reality, you must fulfill home financial obligations called buyers closing costs in Texas.
- Closing costs, also known as “settlement costs,” are the final expenses to complete the real estate transaction.
- Closing costs are separate from the price of the property.
- Due to local tax rates, closing costs for buyer in depend in Texas also depends on where the buyer lives.
- The buyer can negotiate certain closing costs with the seller and the lender.
What are Closing Costs in Texas?
Closing costs are the charges that need to be paid over and above the agreed upon purchase price. These costs are essentially fees for services that help finalize the real estate transaction and transfer the ownership of the property.
Who Pays Closing Costs in Texas: Buyer or Seller?
Both the seller and the buyer pay closing costs. Typical closing costs for seller in Texas usually add up to 8%-10% of the sales price. On the other hand, buyers disburse 2%-6% of the purchase price to closing costs.
Some sellers may offer to pay buyer closing costs to improve the prospects of selling their home faster. They may also offer the same to buyers as an incentive to remove certain terms and contingencies from the sales contract.
What are the Closing Costs for a Buyer in Texas?
Here are some closing costs typical closing costs for buyers in Texas you may have to pay when buying a house.
1. Application Fee
The first & foremost stage to start buying a house is applying for a mortgage loan. Along with all the paperwork for the mortgage loan, an upfront application fee is charged by the lenders when you submit your loan application. Mortgage lenders in Texas typically charge $300- $500 as an application fee.
This is a non-refundable charge. So, you will not get this money back even if your loan application is rejected. Please note that not all lenders charge a mortgage application fee.
2. Appraisal Fee
It is a common practice for lenders to hire an appraiser to determine the fair market value of the property you want to purchase before granting the loan amount. This helps them determine the loan amount and the loan-to-value ratio.
The appraiser has to be compensated whether the mortgage gets approved or rejected. Hence, the appraisal fee needs to be paid upfront. The cost of an appraisal in Texas for a single family home ranges from $220-$350.
3. Attorney Fees
A real estate attorney is licensed to practice real estate law. They draft and review the purchase agreement and transfer of title on behalf of the lender. They also offer advice on negotiations. Buyers usually hire attorneys when there is a complex or unusual transaction involved.
Some situations that may warrant hiring an attorney are joint ownership of the house, private loans from family or friends, the presence of easements on the property, or difficulty in understanding the contract.
4. Closing Fee/ Settlement Fee
In Texas, the closing cost transactions are taken care of by the title insurance agent or an escrow agent. Sometimes, even the lawyer handles the closing cost process for the buyer & the seller. These settlement charges will depend on where exactly you are purchasing the property in the state. The typical escrow fee in Texas is 1% of the purchase price.
» How Often is Title Insurance Used: Read further to know more about title insurance in Texas.
5. Courier Fee
The courier fee covers the cost of sending the documents to various parties. The buyer pays this fee.
Courier fees in Texas may range from $25-$150 depending on the costs of postage and service requirements.
6. Credit Report Fee
Credit reporting fee is the cost of obtaining a credit report. The lender will use your credit report to estimate your ability to repay the mortgage. They may request your credit report multiple times during the loan application process.
The cost of credit report fee in Texas ranges from $25-$75.
7. Discount points
You can lower or buy down the interest rate on your mortgage by purchasing discount points from the lender. It is a prepaid interest you can pay upfront to lower your monthly mortgage payments.
The lender charges a fee to lower a set amount of interest rate called points. The value of discount points is based on the type of loan and prevailing mortgage rates and is decided by the lender. Generally, one discount point can be bought for a fee of 1% of the mortgage amount. Typically, lenders slash the interest rate by 0.25% for every discount point.
8. FHA Mortgage Insurance
All FHA loans require mortgage insurance. If you opt for this type of loan, you are required to pay an upfront premium of 1.75% of the loan amount. In addition to this, you will also have to pay an annual premium of 0.85% of the loan amount.
FHA loans are designed to help moderate-income buyers with lower credit scores become homeowners. It is insured by the Federal Housing Administration (FHA).
9. Flood Certification Fee
If the property you intend to purchase is in or around a flood zone according to the Federal Emergency Management Agency (FEMA) maps, you must acquire a flood certification. The typical flood certification fee in Texas is $600.
The lender uses the flood certification report to determine if special flood insurance is required. The average cost of flood insurance in Texas is $180 per month.
10. Homeowner’s Insurance
Most lenders require you to purchase homeowner insurance before they finance the loan, as it protects their investment. In Texas, even though it’s not legally required but having homeowners insurance is a good idea because it helps protect your home and other external causes. Typically, homeowner’s insurance cost $184 per month.
11. Lead-based Paint Inspection
If you are purchasing a house built before 1978, you must get a lead-based paint inspection done. The cost varies according to the size and location of the property.
Moreover, according to the Residential Lead-Based Paint Hazard Reduction Act of 1992, you can conduct a lead-based paint within 10 days of signing the contract. If lead hazards are identified, you can cancel the contract without penalty. Some buyers may waive this right. The cost of lead-based paint inspection in Texas may range from $200-$500.
12. Lender’s Title Insurance
Apart from homeowners insurance, many lenders also require the buyer to purchase a lender’s title insurance. It protects the lender against loss over potential legal claims over the house or if the seller cannot rightfully transfer the ownership of the house. Lender’s title insurance cost in Texas is $100.
» How Much is Title Insurance in Texas: Read further to know more about how much is title insurance in Texas.
13. Loan Origination Fee Texas
The lender charges an upfront loan origination fee to process the loan once the mortgage loan is excepted by the lender. Sometimes the lenders collect it as a processing fee. The typical loan origination fee in Texas is 0.5%-1% of the mortgage price.
14. Mortgage Escrow Account/Impound Account
The lender may open a new escrow account or use the previously established one to pay the property tax and premiums for homeowners insurance and mortgage insurance. The escrow funds are deposited from the monthly mortgage payments. The impound account is managed by a mortgage servicer who will make the payments on your behalf.
An impound account is not mandatory according to Texas law. However, a mortgage lender can establish a mortgage escrow account under certain conditions. Some of these are failure to pay property tax installments for two consecutive months, opting for an FHA or VA loan, a loan amount of 90% of the appraised value, and higher-priced mortgage loans
15. Owner’s Title Insurance
Who pays owner’s title insurance in Texas depends on which part of the state you are buying property in. In northern Texas, you may have to split the owner’s title insurance with the seller evenly. On the other hand, in southern Texas, the seller pays for the owner’s title insurance.
The average owner’s title insurance cost in Texas is $2000.
» Cost of Owner’s Title Insurance Policy in Texas: Read further to know more about owner’s title insurance.
16. Pest Inspection Fee
A pest inspection is usually required if the appraiser observes any signs of structural damage due to pest infestation. However, some lenders require an official report of inspection before approving the mortgage. The cost of pest inspection in Texas is $100-$150.
In Texas, a pest inspection is required before a VA loan can be closed.
» Texas Home Inspections: A detailed guide on Home Inspections in Texas.
17. Prepaid Daily Interest Charges
The monthly mortgage payment is due on the 1st of every month, starting 30 days after closing. However, the interest on the mortgage starts accumulating from the day of closing itself. You must pay the accrued interest from the closing day to the first mortgage payment as closing expenses. These are called prepaid daily interest charges.
So, for instance, if you purchase a house on the 4th June, your first mortgage payment will be due on the 1st August. You will have to pay the accrued interest on the loan from 4th June to 31st July at the time of closing.
18. Property Tax
The state of Texas does not levy a property tax. Nonetheless, homeowners must pay property tax to the local government. The amount of property tax is proportional to the market value of the house. Buyer property tax starts to accrue from the day of closing.
Texas has the seventh highest property tax rate in the USA at 1.69% of the home’s assessed value at the time of purchase. Considering the Texas median home value, the homeowners pay an average of $5,340 as their annual property tax
Lenders often require buyers to pay one year’s worth of property tax in advance at closing. These funds are usually collected and paid via the escrow account.
19. Private Mortgage Insurance
If you opt for a conventional loan and make a down payment of less than 20%, your lender will require you to buy Private Mortgage Insurance (PMI). The average rate of PMI for conventional loans in Texas can range from 0.5%-1.86% of the original loan amount.
You can choose to pay the complete or a partial amount of PMI upfront to lower your monthly mortgage payments.
20. Rate Lock Fee
A rate lock fee is the cost of fixing the mortgage interest rate at a specific price for a set period. Locking the interest rate keeps you safe from real estate housing market Texas fluctuations. Once the rate lock period expires, most lenders charge an additional fee to extend it. The rate lock fee in Texas ranges from 0.25% to 0.50% for 60 days.
While a rate lock can save a significant amount of money in interest, it is important to note that lenders can void the rate lock at any point if your debt-to-income ratio increases and your credit score declines.
21. Recording Fee
A recording fee is paid to the local government to register the change in ownership of a house or sale of a property in the public record. It also records mortgages and other liens against the house. It is usually charged by the county.
In Texas, a recording fee of approximately $15 to $40 is charged depending on the county.
22. Tax Monitoring Fee/ Tax Status Research Fee
A tax monitoring fee is paid to a tax service agency that monitors if you pay the property tax on time. The tax service agency alerts the lender in case you default. It is also sometimes referred to as a tax service fee.
Lenders opt for tax monitoring to prevent tax liens and protect their access to the property. The typical tax monitoring fee in Texas is $50.
23. Title Fees Texas
A title agency charges a title search fee to determine the legal ownership of a property by examining public records like deeds, tax liens, land records, court judgments, etc. The title search helps discover any liens or claims on the property that the seller may also be unaware of. The cost of a title search in Texas for a single family home ranges from $100-$250.
24. Transfer Fee
The state of Texas does not impose a transfer fee on real estate transactions.
Transfer tax is levied to transfer ownership of the house from the seller to the owner. The tax amount is based on the value of the property. It may be imposed by the municipality, county, or state.
25. Underwriting Fee
Mortgage underwriters charge an underwriting fee to evaluate and verify loan applications. It is a one-time fee Some lenders charge it in place of the originating fee, while others charge it in addition to the same. The typical mortgage underwriting fee is $500.
26. VA Funding Fee
The VA funding fee is a one-time fee paid to the Department of Veteran Affairs (VA) that runs the VA loan program. The VA fee you have to pay depends on the down payment they make for a property. if you make a down payment of less than 5%, you have to pay a VA fee of 2.3% for your first home and 3.6% on any subsequent homes.
|Down Payment||VA Fee for 1st Loan||VA Fee for Subsequent Loans|
|Less than 5%||2.3%||3.6%|
|5% or more||1.65%||1.65%|
|10% or more||1.4%||1.4%|
27. Texas Warranty Deed
There are different types of Deeds involved in Texas property transactions. But the most commonly used are as per below. The cost of these documents ranges from $100-$150.
General Warranty Deed: This type of deed stands guarantees the buyer that the title comes without any liens or other title-related title problems. This deed provides more safety to buyers compared to any other deed.
Special Warranty Deed: It provides less protection than a general warranty deed. In this, the current owner warrants the title to be good from the time they acquired the property to the present time and that no harm has been caused to the property during their stay in the property.
Deed Without Warranty: As the name suggests, this deed does not offer any warranty. If this deed is in place, the buyer cannot sue the owner for any discrepancies arising in the future.
Quitclaim Deed: A quitclaim deed only allows to transfer of whatever the seller interests in the property. It does not mention clearance of title. The quitclaim deed is not commonly used in Texas.
» What is Closing Cost on a House in Texas: A detailed guide on what is closing cost on a house in Texas.
Average Closing Costs for Buyer in Texas
How to Reduce Buyers Closing Costs in Texas?
1. Opt for a real estate broker who offers a rebate program
Some real estate brokers may offer you incentives like rebates that help lower closing costs and/or buy down the mortgage interest. Real estate agent services are free for buyers as sellers pay the agent commission for both parties.
» What is the Standard Real Estate Commission in Texas: Check the real estate commission in Texas
2. Compare lender mortgage rates
You can compare lenders to choose the one offering the best mortgage rates and benefits. If you have a preferred bank, you can also negotiate the mortgage rate with them. Further, if you have received an offer with a lower rate from a different lender, you can share it with the preferred bank and ask if they can match or beat it.
» Mortgage Broker in Texas: A mortgage broker can help you find the best loan deal.
3. Compare loan estimate forms
Lenders are required to give you a loan estimate form within 3 days of completing the loan application. The document list all costs, including the loan amount, interest rate, and monthly payments. It also has a section called “services you can shop for,” where you can compare various lender-preferred vendors. Nonetheless, this does not mean that you cannot opt for independently chosen vendors.
However, it must be noted that independently choosing vendors carries the risk of increased closing costs if they increase their pricing before closing. Lender-provided vendors are not allowed to change their prices by more than 10% from the original quote.
» Where to Get Preapproval for a Mortgage: Need to get a loan preapproved? We explain the process in detail.
4. Negotiate lender fee
As mentioned above, some lenders charge origination and/or underwriting fee. You can request the lender to waive these fees or negotiate a lower charge.
5. Close at the end of the month
By closing at the end of the month, you can save on the prepaid daily interest charges.
Here’s you can calculate the prepaid daily interest savings:
Step 1: Multiply the loan amount by the interest rate. For instance, if the rate is 5 percent, multiply by .05. This will give the annual interest expense.
Step 2: Divide the annual interest expense by 360 to get the daily interest charge.
Step 3: Multiply the figure calculated in the previous step by the number of days left in the month plus the first day of the following month.
6. Opt for the no-closing cost option
You can avoid paying closing costs at the time of closing, especially if you are strapped for cash, by rolling these costs in the mortgage. However, lenders that offer this no-closing cost option charge a higher interest rate in exchange for it.
7. Minimize requests
Making demands can make the deal slow and troublesome for both parties. You should make minimal requests so the seller is more willing to cover some of the closing costs. If there are too many inconveniences, the seller may question your genuineness and feel a need to back out.
8. Make it quick and hassle-free
Most of the sellers aren’t happy dealing with the lengthy transaction. As much as possible, you must keep the transaction straightforward without beating the bush.
9. Ask the seller to cover closing costs
Depending on the market conditions, you can negotiate the deal with the seller by requesting them to cover some of the closing costs for buyers in Texas or offer credits towards closing costs.
» Low Cost Realtors Near Me: Hiring a low-cost realtor will also help you as the seller would be amiable if the Realtor fees are relatively low.
Texas Closing Cost Calculator for Buyer
Wondering how to calculate closing costs for buyer in Texas?
Closing costs vary heavily according to location and mortgage rates. Houzeo’s Closing Cost Calculator is a free tool that factors in these elements to help sellers and buyers estimate their closing costs. It shows the user a detailed list of itemized costs and also highlights junk costs that can be avoided.
Houzeo’s Closing Cost Calculator is frequently calibrated to give sellers and buyers the closest estimate according to market conditions.
» Home Closing Cost Calculator for Buyer in Texas: Use this closing cost estimator for Texas buyer to cost of buying a house in Texas!
Developing an understanding of buyers closing costs in Texas is important for you as it can help you estimate your financial affordability and discover where you can save. Ultimately, this can have a great impact on choosing the property you can purchase and the total amount you spend.
If you have not begun your real estate journey yet, opt for Houzeo. Houzeo.com, a tech company, provides an unbeatable combination of maximum savings, cutting-edge technology, and 5-star customer support. With its 100% virtual service, it helps home sellers list their properties without any hassle from the comfort of their homes while also allowing home buyers to explore properties and make offers online. Houzeo’s customer-centric approach, advanced technology, and flat fee packages make it an ideal choice for those looking to avoid paying high commissions and closing costs.
Frequently Asked Questions for Buyers Closing Costs in Texas
1. How long does recording take after closing in Texas?
Usually, the recording of deed in Texas takes place on the same day as closing. However, it may take longer if the documents are submitted late on a Friday or around a holiday.
2. Are HOA fees tax deductible in Texas?
HOA fees are not generally tax deductible. However, if you are self-employed and have a home office or use part of your home to store inventory, you may be able to write it off in your taxes. HOA can also be tax deductible if you rent the house.
3. How is closing cost for buyers in Texas calculated?
Closing costs are a sum of specific settlement expenses. These vary according to the location, mortgage rates, and market conditions. Houzeo's closing cost calculator is a free tool buyers can use to get a close estimate of their settlement costs.
4. Who pays for the title insurance policy in Texas?
In Texas, it is customary for sellers to pay for the owner's title insurance policy. If the buyer has taken a mortgage to purchase the property, they must pay for the lender's title insurance policy.
- Who Pays Closing Cost in Texas: The average closing costs in Texas for buyer also varies according to the type of real estate deal. Read more.
- Refinance Closing Costs Texas: Planning to refinance your mortgage? These are the closing costs you must consider.
- Typical Closing Costs for Seller in Texas: Selling a house in Texas in the near future? Here is a detailed breakdown of seller closing costs in TX.
Resources for Buyers
- Mandatory Disclosures Texas: All sellers need to disclose important information regarding your property. Take a look at the mandatory disclosures in Texas.
- Texas Home Inspectors: Check out the options available for home inspection in Texas.
- Home Inspection Texas Cost: If you’re planning to buy your house in Texas, check out this guide to know the inspection costs in Texas.
- Requirements For Buying a House in Texas: Find out what are the requirements for buying a house in Texas.
Resources for Sellers
- Foreclosure Process in Texas: Check out the foreclosure process in Texas.
- Estimate Seller Closing Costs Calculator Texas: Wish to know the estimated closing costs for sellers? We have a handy calculator for you.
- Does Seller Pay Lender’s Title Insurance in Texas: Take a look at our blog to know if seller pays lender’s title insurance in Texas.
- Companies that Buy Houses for Cash Texas: Sell your home to Texas cash companies without having to go through the tedious home-selling process.
- Texas Discount Real Estate Brokers: Take a look at the discount REALTORS who can help you sell you house at a low commission in Texas.
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