Buying a new home is an exciting and big decision, whether it’s your first home or your second home. But before you dive too deep into buying new furniture or appliances, you’ll want to consider how much you’ll need to pay for closing costs.
Closing costs are the fees and expenses associated with finalizing a real estate transaction and transferring ownership of a property from the seller to the buyer. If you’re feeling unprepared or overwhelmed, don’t worry. To help you budget for closing costs, this Redfin article will cover how much closing costs are in Texas, who pays for them, and which costs you can expect to pay as a buyer and as a seller.
How much are closing costs in Texas?
Before securing the keys to your new home, homebuyers will need to pay for closing costs. Closing costs in Texas typically range from 2%-5% of the home’s purchase price. However, keep in mind that closing cost amounts vary depending on a number 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’re buying a home in Houston, which has a median sale price of $360,000, closing costs could range anywhere from $7,200 to $18,000. Or, let’s say that you’re buying a home in Dallas, which has a median sale price of $500,000. Closing costs for a home here could range from $10,000 and $25,000.
Who pays closing costs in Texas?
Usually both the buyer and the seller pay closing costs. But, each party’s closing costs amount will vary depending on what they are required to pay. Another thing to keep in mind is that buyers typically pay for closing costs out of pocket, while the seller’s closing cost payments are often deducted from the home sale proceeds.
Buyer closing costs in Texas
Closing costs in Texas for homebuyers typically range between 2%-5%. In most cases, you’ll pay earnest money, typically 1% to 3% of the home price, upon reaching mutual acceptance in your home purchase. This deposit is subtracted from your closing costs, reducing the total amount due at closing. Let’s break down some of the common closing costs covered by the buyer:
- Appraisal fee: Home appraisals, which typically range from $300 to $500, are usually paid for separately at the time of the service. However, if not, you’ll need to pay for this at closing.
- Inspection fee: Home inspections in Texas generally range from $300 to $500 – they can vary based on local rates and the property’s specific characteristics. If you don’t pay for the inspection at the time of service, this will need to be paid at closing.
- Loan origination fee: Your lender may charge a fee for creating your loan. It’s important to inquire about what this cost covers and whether it’s negotiable to potentially avoid high costs.
- Loan processing fee: Lenders may also charge a loan processing fee, covering underwriting and related services. Similar to the origination fee, check with your lender to understand its purpose and possible waivers.
- Loan discount points: If you’ve purchased points to lower your interest rate, you’ll usually pay a one-time fee at closing. Each point can lower your rate by 0.25% to 0.5%. Consider your long-term plans, such as how long you plan to own the home or if you plan to re-finance, before purchasing points.
- Private mortgage insurance (PMI): When your down payment is under 20%, you’re typically required to pay PMI. Some loans allow upfront PMI payment at closing, giving you the choice between higher upfront costs or increased monthly payments.
- Title insurance: Title insurance is a one-time closing cost, with buyers commonly paying for both lender and owner policies.
- Homeowners insurance: Your annual homeowners insurance premium may be included in your closing costs in Texas.
- Homeowners Association dues: For homes in HOA-managed communities, you might have to pay one month’s dues at closing, which can vary depending on the property and covers maintenance and operational expenses.
- Property taxes: As part of closing costs in Texas, you may be required to prepay a portion of your property taxes at closing.
Seller closing costs in Texas
How much closing costs are in Texas for sellers will vary between each transaction, but here are a few common closing costs that sellers pay for:
- 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 their agent.
- Homeowners Association fees: If the property is part of an HOA, the seller may need to pay a variety of fees. These can include HOA transfer fees, outstanding dues, and possibly a fee for obtaining HOA documents required by the buyer. The exact fees will depend on the HOA’s rules and regulations.
- Property taxes: Sellers are responsible for any property taxes that have accrued but not yet been paid up to the closing date. These unpaid property taxes are typically prorated for the months that you owned the property.
- Title insurance: Owner’s title insurance is another common closing cost in Texas paid for by the seller.
Median home sale price data from the Redfin Data Center during July 2024.
This post first appeared on Redfin.com. To see the original, click here.