Who Pays Closing Costs in Texas?

In Texas real estate transactions, closing costs are fees and expenses beyond the property’s purchase price. These costs are incurred at closing, when ownership is officially transferred. Both buyers and sellers typically share these financial responsibilities, though the specific allocation can vary.

Components of Closing Costs

Closing costs include various fees for services, taxes, and other expenses. A loan origination fee is charged by lenders for processing a new mortgage. Appraisal fees cover the cost of a professional valuation of the home.

Title insurance premiums protect the buyer and lender from potential issues with the property’s title. There are two main types: an owner’s policy and a lender’s policy. Survey costs determine property boundaries and identify encroachments. Escrow fees are charged by a neutral third party for holding funds and documents until the transaction is complete.

Recording fees are paid to the county to record the transfer of ownership and mortgage documents. Property taxes are prorated at closing. Homeowner’s Association (HOA) fees are also prorated, and sellers may need to cover transfer fees or outstanding dues. Other potential costs include credit report fees and notary fees.

Standard Payment Responsibilities in Texas

In Texas, the division of closing costs between buyers and sellers often follows customary practices, though many aspects are subject to negotiation. Typically, the seller is responsible for the owner’s title insurance policy, which protects the buyer’s interest in the property. This policy ensures a clear title free from encumbrances. However, the buyer is generally responsible for the lender’s title insurance policy if financing the purchase, as this protects the lender’s investment.

Regarding surveys, it is common for the buyer to pay for a new survey to confirm property boundaries, unless the seller has an existing survey that is acceptable to the title company and lender. If the seller fails to provide an acceptable existing survey, the buyer might obtain a new one at the seller’s expense, depending on the contract. Real estate agent commissions, often the largest closing cost, are traditionally paid by the seller, typically ranging from 5% to 6% of the home’s sales price.

Other costs are frequently allocated based on who benefits most from the service. Buyers typically cover expenses tied to their mortgage loan, such as loan origination fees, appraisal fees, and credit report fees. Sellers are usually responsible for prorated property taxes up to the closing date and any outstanding HOA fees or transfer fees. Escrow fees and recording fees are often shared between both parties, reflecting their mutual involvement in the transaction.

Modifying Payment Responsibilities

While standard practices exist for allocating closing costs in Texas, these arrangements are often subject to negotiation between the buyer and seller. This flexibility allows parties to adjust financial responsibilities based on their individual circumstances and market conditions. Seller concessions are a common way to modify payment responsibilities, where a seller agrees to pay some of the buyer’s closing costs or prepaid expenses. These concessions can make a property more attractive to buyers, especially in a buyer’s market.

The amount of seller concessions allowed is often limited by the type of loan the buyer is obtaining. For conventional loans, seller concessions can range from 3% to 9% of the purchase price, depending on the buyer’s down payment amount. If the down payment is less than 10%, the limit is typically 3%; for down payments of 10% to 24.99%, it can be up to 6%; and for down payments of 25% or more, up to 9%.

Government-backed loans, such as FHA and VA loans, also have specific limits on seller contributions. FHA loans generally cap seller concessions at 6% of the purchase price, regardless of the buyer’s down payment. For VA loans, sellers can contribute up to 4% toward closing costs, including the VA funding fee and certain prepaid items. These limits ensure that the loan programs remain financially sound while providing assistance to buyers.

Market conditions significantly influence the willingness and ability to negotiate closing costs. In a seller’s market, where demand outweighs supply, sellers may be less inclined to offer concessions, and buyers might even pay for costs typically covered by the seller to make their offer more competitive. Conversely, in a buyer’s market, sellers might be more open to covering a portion of the buyer’s costs to facilitate a sale. Any agreed-upon modifications to payment responsibilities should be clearly documented in the purchase agreement to avoid misunderstandings at closing.