Buying a new home is an exciting and big decision, whether it’s your first home or your second. But before you dive into buying new furniture or appliances, you need to consider how much closing costs you’ll pay.
Closing costs are the fees and expenses associated with completing a real estate transaction and transferring ownership of the property from seller to buyer. Don’t worry if you feel unprepared or overwhelmed. To help you budget for closing costs, this Redfin article will explain how much closing costs are in Texas, who pays them, and what you can expect to pay as a buyer and seller.
What are the closing costs in Texas?
Homebuyers need to pay closing costs before getting the keys to their new home. Closing costs in Texas typically range from 2% to 5% of the home purchase price. However, keep in mind that the closing cost amount depends on a variety of factors, such as the purchase price of the home, the type of loan and any adjustments negotiated with the seller.
For example, if you buy a home in Houston where the average sales price is $360,000, closing costs may range from $7,200 to $18,000. Or, let’s say you want to buy a home in Dallas that sells for an average of $500,000. Closing costs for a home here can range from $10,000 to $25,000.
Who pays closing costs in Texas?
Typically both the buyer and seller pay closing costs. However, the amount of closing costs for each party will vary based on how much they need to pay. Another thing to keep in mind is that buyers typically pay closing costs out of pocket, while sellers’ closing costs are typically deducted from the home sale proceeds.
Texas buyer closing costs
Closing costs for Texas home buyers typically range from 2% to 5%. In most cases, you will pay a deposit, usually 1% to 3% of the home price, once the two parties come to an agreement during the home buying process. This deposit will be deducted from your closing costs, reducing the total due at closing. Let’s take a closer look at some common closing costs that buyers pay:
- Assessment fee: Home appraisals typically range from $300 to $500 and are usually paid separately at the time of service. However, if not, you will need to pay a fee at closing.
- Inspection fees: Home inspections in Texas generally cost between $300 and $500, with costs varying based on local rates and the specific characteristics of the property. If you did not pay for the inspection at the time of service, you will need to pay it at closing.
- Loan origination fee: Your lender may charge a fee to create your loan. It’s important to understand what this fee covers and whether it can be negotiated to avoid high fees.
- Loan processing fee: Lenders may also charge a fee for loan processing, including underwriting and related services. Similar to the origination fee, check with your lender to understand its purpose and possible exemptions.
- Loan discount points: If you buy points to get a lower interest rate, you’ll usually pay a one-time fee at closing. Each point can lower your rates by 0.25% to 0.5%. Before purchasing points, consider your long-term plans, such as how long you plan to own the home or whether you plan to refinance.
- Private Mortgage Insurance (PMI): When your down payment is less than 20%, you usually have to pay PMI. Some loans allow PMI to be paid upfront at closing, giving you the option of a higher upfront cost or increased monthly payments.
- Title Insurance: Title insurance is a one-time closing cost, and the buyer usually pays for both the lender and the owner’s policy.
- Home Insurance: Your annual home insurance premium may be included in your closing costs in Texas.
- Homeowners Association Dues: For homes in HOA-managed communities, you may be required to pay one month’s dues upon closing, which may vary by property and cover maintenance and operating expenses.
- property tax: As part of your Texas closing costs, you may be required to prepay a portion of your property taxes at closing.
Texas Seller Closing Costs
In Texas, sellers’ closing costs will vary per transaction, but here are some common closing costs sellers pay:
- Real estate agent commission fees: These fees can be a significant cost for sellers. Commission fees may vary and are subject to negotiation. Sellers should discuss their options with an agent.
- Homeowners Association Fees: If the property is part of an HOA, the seller may be required to pay various fees. These fees may include HOA transfer fees, outstanding payments, and fees that may be incurred to obtain the HOA documents required by the buyer. The exact fees will depend on the HOA’s rules and regulations.
- property tax: The seller is responsible for any property taxes accrued but not yet paid prior to the closing date. These unpaid property taxes are usually prorated based on the months you owned the property.
- Title Insurance: Owner’s title insurance is another common closing cost paid by the seller in Texas.
Median home sales price data from the Redfin Data Center for July 2024.