How Much are Closing Costs when Buying a Home in Texas?
Calculating your closing costs when buying a home in Texas is going to be dependent upon which type of loan you receive. The closing costs will also be significantly less when paying cash for a house versus obtaining a mortgage. Typically, when obtaining a mortgage the closing costs range between 2% to 6% and are typically around the 4% range. These costs will be disclosed on the Closing Disclosure presented by your lender with the break down of each fee.
In Texas we use Title Companies to handle the process of closing real estate transactions. This process is referred to as escrow. The title company researches the transfer of ownership of the property back to the original land grants and ensures that when you buy a home, you indeed have ownership with no one able to come back and claim that they really own the property. A title policy is basically insurance guaranteeing the title company did their job and that there are no clouds on the title obscuring ownership.
Many things are included in closing costs when buying a house. Lenders many times divide these costs into two main groups. There are settlement fees and there are pre-paid items. Settlement fees are those fees paid as a cost of buying the home. They include escrow fees, attorney fees for drafting the documents, filing fees to file the deed of trust with the county courthouse, lender origination fees, underwriting fees and the like. Pre-paid items include one year of homeowner’s insurance, pre-paying the property taxes, paying a couple months of taxes and insurance to form a starting positive balance in the escrow account so money will be there when the taxes and insurance become due. It is possible to get the seller to contribute to the buyer’s closing costs in paragraph 12.A. of the One to Four Family Residential Contract which is a standard form used by all REALTORs® in Texas. This contract form is produced by the Texas Real Estate Commission (TREC).
What is included in closing costs on a house?
In the United States people buy and sell a home on average once every 10 years. This is very often the most expensive investment and purchase a family will make in a decade. The costs associated with buying a home can be confusing. When buying a home in Texas there are closing costs on both the buyer’s side and the seller’s side of the transaction. The amount of money due at closing when buying a house will include the down payment plus closing costs or costs associated with the purchase. There are a lot of people involved in the purchase process from the title company, to attorneys, lenders, real estate agents, home inspectors, and appraisers for example. Some of these fees are divided between the buyer and the seller of the home and some are not. Typically, the seller pays all of the REALTOR® fees while the document preparation and escrow fees are split. The buyer is responsible for lender origination fees, the home appraisal, and what are referred to as pre-paid items. Most of the time, when a home buyer obtains a loan from a bank, the lender will include four parts to the payment Principal, Interest, Taxes and Insurance referred to as PITI. The estimated taxes and insurance are collected each month and then when those bills become due, the bank pays them on behalf of the buyer. This is to ensure that the lender doesn’t lose the first lien position if taxes are not paid and that insurance is covering the collateral of the loan which is the house itself. The buyer’s closing costs will include one year of insurance paid up front, taxes as well as two to three months of estimated taxes and insurance to start of the escrow account with a positive balance.
How much are closing costs for the seller?
When selling a home in Texas, closing costs include escrow fees, filing fees, REALTOR® commissions and typically a title policy for the buyer. Most of the time, the seller will buy a title policy for the buyer and the buyer pays for a title policy covering the lender’s interest in the property. The title policy is essentially an insurance policy insuring that the title company researched the entire history of ownership and cleared any encumbrances or liens against the house. The closing costs on the seller’s side are somewhere around 10% of the negotiated contract price or sales price depending on the price point of the home. When the price is much lower or much higher than the median price in the area, this estimated percentage can vary and is a rule of thumb that can be used as a quick estimate to have an idea of what to expect going into the listing process. Some of the fees are a flat rate and some are a percentage based on the sales price. The listing agent should have a “net sheet” he or she will prepare for the seller to show them exactly how each of the fees breaks down and what the estimated net to the seller will be based on any given offer. Sometimes, the buyer may ask for the seller to contribute to the buyer’s closing costs. In some local north Texas markets this is still common, and in some other areas where there is a stronger seller’s market it is not. It is all negotiable with the price and other factors and seller concessions can be offset with a higher sales price based on market conditions at the time of the offer.
Are closing costs part of the down payment?
Closing costs when buying a home in Texas are separate from the down payment. The amount of money due at closing for the buyer will be the closing costs plus any pre-paid items required by the lender and the down payment. Different types of loans have different down payment requirements. The Veteran’s Administration or VA loan for service members is 100% financing requiring no down payment. There is a funding fee that is 2% for the first use of the loan and 3.5% for subsequent VA loans, and this can be rolled into the loan amount. There are some fees specified by the VA which the buyer is not allowed to pay, so these are usually requested from the seller in paragraph 12.A. of the purchase contract. There are several other government backed loan programs with low down payments. The USDA loan program provides 100% financing in rural areas of Texas, these are towns with less than approximately 10,000 in population. The Federal Housing Administration (FHA) backed loans are very popular and require 3.5% down payment. Conventional financing loans have down payments that range between 5% to 20%. These down payments are separate from the closing costs associated with the cost of purchasing the house.
How do you pay for closing costs?
Closing costs on the purchase of a home in Texas are paid at the title company. These fees are normally either wired or paid in the form of a cashier’s check or some form of certified funds so they clear quickly. The title company is responsible for not only researching the title history of the property, but also disbursing all the funds at closing. The closing costs and down payment are added together on the Closing Disclosure so the buyer knows exactly what will be required to bring.
Can I get the seller to pay my down payment?
It is often said that all things are negotiable in real estate. In the standard contract form One to Four Family Residential Contract, which is a promulgated form by the Texas Real Estate Commission (TREC) actually has this built in. In paragraph 12.A on page 5 of the current form there is a place to request for a certain dollar amount for the seller to contribute to the buyer’s closing costs. This is an up to and not to exceed dollar amount. Frequently buyers ask for “all closing costs” to be included. The type of loan you receive will have certain restrictions. For instance, the FHA guidelines specify that the buyer must contribute 3.5% of the loan amount. The best advice is to speak with your lender about the different loan options and rules associated with each.
What is a Seller Concession?
A seller concession is something the seller contributes to the sale of the home other than the sales price. This can be the purchase of a home warranty, a contribution of a certain dollar amount the seller pays for buyer’s closing costs when buying a house, or other items added such as non-realty items like the refrigerator, washer and dryer, swing set in back yard or anything else the seller contributes as negotiated int he contract.
What is included in Settlement Fees?
Settlement fees are the portion of the closing costs the title company charges for their work performed in the purchase process. These fees include an escrow fee, loan closing fee, overnight package fees if applicable, recording fees, and filing fees associated with filing and recording the deed with the county clerk’s office.
What is Title Insurance and what does it do?
A tile policy or title insurance is essentially insuring the title company’s work when they did the research, and it insures that when you buy a home that there aren’t any previous ownership issues or liens on the house that may threaten your ownership. If any “clouds” are on the title, they will need to be resolved prior to closing. This is a very important reason to use a title company when buying a home in Texas. There are many sellers we have spoken to when selling their home who did not value the expense of buying a title policy when they made their purchase only to find out that there were outstanding taxes or maintenance liens on the home. These liens transfer with ownership and if not cleared prior to your purchase become your responsibility to pay. These will have to be paid prior to selling the home in the future assuming the next buyer does their due diligence and wishes to obtain their own title policy. This nominal cost can save you many thousands of dollars and much headache in the future.
What are the Closing Costs on a VA Loan?
Service members who have served in any of the armed forces have a wonderful benefit for buying a home in that the Veterans Administration (VA) provides 100% financing for veterans. Current military members, those who have separated and retirees can qualify as long as the minimum service requirements are met. It is a misnomer however to assume that 100% financing means veterans can buy a home with zero costs or that they are not allowed to pay anything at closing. The down payment and the closing costs when buying a home in Texas are separate items. It is allowable for a veteran to request up to 6% of the loan amount to be paid by the seller, however this is an allowed maximum rather than a requirement. There are certain items that the VA requires and does not allow the buyer to pay for including a pest inspection for wood-destroying insects and certain lender fees are non-allowable for the buyer to pay. These can be covered by the seller as a seller concession if negotiated in the offer.
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