Who Pays the Closing Costs in Texas?

Closing costs are a collection of fees and expenses beyond the actual purchase price of a property. In Texas, these expenses typically range between 2% and 5% of the home’s total sales price.

Overview of Texas Closing Costs

Real estate transactions in Texas involve various types of closing costs, each serving a specific purpose.

Lender fees are charged by financial institutions for processing and originating a mortgage loan. These often include an origination fee, which can be a flat amount or around 1% of the loan amount. Additional lender charges may encompass underwriting and processing fees, an appraisal fee (ranging from $500 to over $1,000), and a credit report fee.

Title company fees cover services related to ensuring a clear and marketable title for the property. This category includes the cost of title insurance, both for the owner and the lender, which protects against financial loss from title defects or liens. Other charges within this group are escrow or closing fees, typically averaging around $450, and document preparation fees. The Texas Department of Insurance regulates title insurance premiums, meaning all title companies charge the same rate for the same coverage.

Government fees are collected by local authorities for recording the change of ownership and other administrative tasks. Recording fees are charged by the county to officially register the deed and mortgage documents, with seller recording fees averaging around $750. Texas does not impose a state-level transfer tax on real estate sales.

Prepaid expenses account for costs related to property ownership that are paid in advance at closing. This often includes the first year’s premium for homeowner’s insurance and prorated property taxes. In Texas, property taxes are paid in arrears, necessitating a proration at closing. Miscellaneous costs can also arise, such as survey fees (up to $600) and home inspection fees (typically $300 to $500).

Buyer’s Share of Closing Costs

Buyers in Texas typically face closing costs ranging from 2% to 6% of the home’s purchase price. These expenses are often tied to securing the mortgage loan and ensuring the property’s condition and clear title.

A significant portion of the buyer’s closing costs stems from loan-related fees. These include the loan origination fee, appraisal fee, and a credit report fee. Buyers typically pay for the lender’s title insurance policy, which protects the mortgage lender’s investment against future title issues.

Beyond loan-specific charges, buyers also incur costs related to the property itself. A home inspection fee covers the professional assessment of the property’s condition. Buyers often pay for a property survey, especially when required by the lender to confirm boundaries and improvements. First-year homeowner’s insurance premiums are typically prepaid at closing, providing immediate coverage.

Prorated property taxes represent another common buyer expense. The buyer is responsible for their share of the taxes from the closing date through the remainder of the tax year. This amount is calculated and adjusted at closing. Some buyers may also opt to pay discount points, an upfront fee to the lender to reduce the mortgage interest rate.

Seller’s Share of Closing Costs

Sellers in Texas generally incur a higher percentage of closing costs compared to buyers, typically ranging from 6% to 10% of the home’s sales price when including real estate agent commissions. Excluding commissions, seller closing costs average around 3.48% of the sales price. These expenses are primarily associated with facilitating the sale and transferring a clear title to the buyer.

The largest expense for most sellers is the real estate agent commission. This fee, usually between 5% and 6% of the home’s sale price, covers the services of both the listing agent and the buyer’s agent. This commission is typically deducted from the sale proceeds at closing.

Sellers are also customarily responsible for the owner’s title insurance policy in Texas. This one-time premium protects the buyer from financial losses due to any defects or claims against the property’s title that might arise after the sale.

Other common seller costs include their portion of escrow or closing fees, paid to the title company for overseeing closing. Prorated property taxes are another item, as the seller is responsible for the property taxes accrued from January 1st of the current year up to the closing date. Recording fees for the deed are also typically paid by the seller, ensuring official transfer of ownership is documented.

Negotiating Closing Costs and Other Influences

The allocation of closing costs in Texas, while often following customary practices, is frequently subject to negotiation between the buyer and seller. Many of these fees are not fixed and can be influenced by various factors, including market conditions and specific loan types.

Market conditions play a role in determining who has the upper hand in negotiating closing costs. In a seller’s market, sellers may be less inclined to contribute to a buyer’s closing costs. Conversely, in a buyer’s market, buyers may have more leverage to request seller concessions, such as the seller paying a portion of their closing costs. Such concessions can reduce a buyer’s upfront financial burden.

Certain loan types also impose specific regulations on who can pay which closing costs, influencing the negotiation process. VA loans, designed for eligible military service members and veterans, have strict rules regarding allowable fees. While VA borrowers typically pay a VA funding fee, sellers are permitted to cover all loan-related closing costs and provide up to 4% in concessions, which can include prepaid items and other expenses.

FHA loans, insured by the Federal Housing Administration, also allow for seller contributions. Sellers can contribute up to 6% of the lesser of the sales price or appraised value towards the buyer’s closing costs, prepaid expenses, and discount points. Additionally, buyers can explore lender credits, which reduce upfront closing costs in exchange for a slightly higher interest rate over the loan term.