When reviewing the standard residential contract (called a 1-4 residential contract) plus numerous addendums, it can be difficult to unpack who pays for closing costs in Texas. Hopefully by the end of this article you will have a better understanding.
It is important to understand that when negotiating a real estate transaction, many of these are negotiable, my goal here is to outline what we see as the norm or most common. Luckily we have many case studies to go off of. To date here at ListingSpark we have sold over a billion dollars worth of real estate across Texas in over 5,000 transactions.
Below I’ll break down these fees in a few different categories like Title closing costs, lender closing costs, contractual closing expenses and then HOA (HomeOwners Association) expenses. Next to each item, I’ll add a note on who normally pays.
Title Company Expenses (Seller Paid)
Below are the list of fees the seller typically pays that are specific to the title company.
- Title Insurance Premium: (Most commonly a seller paid expense in Texas but it is negotiable so this could flip over to the buyer side depending on the situation)
- On a $450,000 home, the title insurance premium will cost $2,677. This fee is set by the state, and is calculated as a percentage of the sales price on a sliding scale that incrementally changes as prices rise. For an in depth table outlining how this works, use this link to TDI’s website.
- Escrow Fee: (The buyer and seller each pay their own escrow fee) Think of the escrow fee as an administrative fee the title company charges to work on the file through closing. This fee is set by the title company and typically ranges from $350-$700 depending on the title company you choose. Buyer and Seller will each pay an escrow fee at closing.
- Document Preparation: (Seller expense) When you close, there are several documents you sign such as the warranty deed. Those documents are put together by a third party attorney. The fee to draw these docs typically ranges from $100-$150.
- Tax Certificate: (Seller expense) The title company is required to balance and prorate year to date taxes at the time of closing. In order to do this, they order a tax certificate meant to verify the correct amount of taxes to collect. The tax certificate can vary based on the company or county but typically ranges from $40-$70.
- Delivery/Courier Fees: (These fees can be shared by buyer and seller depending on what the title company charges. Not all title companies charge these fees so don’t be afraid to ask. Spark Title for example, does not pass along any of these to the buyer or seller). When a closing happens, a lot of documents need to be collected and mailed. Some title companies will pass those fees on to the buyer and seller. These fees can range from $25-$150 depending on the cost of postage and how much a courier service may charge.
- Mobile Notary: If you are not in a place where you can come in to sign in person and it’s more convenient to have someone come to you, a mobile notary can be used. Typically this is a $100-$250 fee for each signing (i.e. the buyer and the seller sign separately) depending on the situation.
Utilize Spark Title and save on several of those fees listed above. At Spark Title, you will only pay a low escrow fee of $350, the tax certificate and document preparation. There is never a charge for Fedex, courier or other delivery fees and there is always a complimentary mobile notary.
Title Company Expenses (Buyer Paid)
The below list are fees a buyer will pay as a result of expenses by the title company.
- Escrow Fee: The same as the seller, the buyer will also pay an escrow fee to the title company for processing the close of escrow.
- Endorsements: Endorsements are expanded coverage with a title insurance policy to tailor the coverage to the specific needs of the transaction. Here is a great article discussing different endorsements. (This cost could be as little $30 and well in to the hundreds or thousands depending on the situation)
- Recording Fees: Once the transaction is finalized, certain documents need to be recorded with the county. This fee ranges from $120-$160 depending on the county
If a buyer has a mortgage, the majority of the buyer’s expenses at closing will be fees paid to the lender to originate the loan. Below is a breakdown of closing costs that a buyer may pay to their lender. Every buyer receives a good faith estimate prior from their lender up front so they know what to expect.
- Loan Origination Charges: These fees can change drastically based on your terms of the loan. For example, you may be able to get your loan origination charges to $0 if you agree to a higher interest rate, or pay as much as 1% of the loan amount to get a lower interest rate.
- Appraisal Fee: The lender will want an unbiased third party to provide an appraisal to verify the value of the property lines up with the contract price. The buyer pays for this appraisal and it ranges from $500-$700 on average.
- Credit Report: $50-$75 This one is pretty self explanatory.
- Lender’s Document Preparation: $100-$120 Get ready to sign A LOT of papers at closing, this is the fee from the lender to generate all those documents.
- Up Front Mortgage Insurance: (This is collected on an FHA Loan) it protects the lender from the risk of the buyer defaulting. Here is a great article discussing how this works and what it costs:
Buyers Escrow Accounts: If you are getting a loan and putting down less than 20%, your lender is going to require you to place your taxes and insurance into an escrow account at closing. You will then pay your taxes and insurance monthly to your lender directly which goes into the escrow account. When your taxes and insurance become due, your lender pays them on your behalf out of the escrow account you established at closing.
- HomeOwners Insurance: You will place a year’s worth of insurance in escrow at the time of closing. Homeowners insurance can range from $900- $2000 per year (or more depending on coverage you choose, home size, whether you have a pool, etc).
- Property Taxes: At the time of closing, the seller will pay the buyer a YTD prorated amount for taxes. For example, if the transaction closes on July 1st, the seller will give the buyer a credit for 6 months worth of taxes since they owned the property for the first 6 months of the year. The buyer will then be responsible for paying the total tax bill at the end of the year. At the time of closing, the buyer’s lender will require several months worth of taxes to be placed in escrow so there is a “pad” in the escrow account in the event the taxes end up being higher than the amount collected each month. The lender does this so they always have enough money to pay the tax bill at the end of the year.
Contractual Expenses: These are the expenses that do not go directly to the title company or lender, rather they are expenses that could go to a variety of other third parties or even directly to the buyer.
- Home Warranty: In the contract it’s referred to as the Residential Service Contract, but the reality is, it’s a one year home warranty that covers items that insurance doesn’t like the HVAC or water heater. The buyer can ask the seller for a credit to go towards the cost of this. Cost ranges from $500-$700. This cost is completely negotiable.
- Survey: Typically the seller will furnish the buyer an existing survey. In the event there is not an existing survey, the contract can be negotiated to dictate who pays for that. They typically cost $400-$550 on average, but for larger properties, survey’s can cost well in to the thousands.
- HOA Fees: If the property is in an HOA, there will be fees to close. Typically there are 3 fees and each one is negotiable.
- HOA Documents: it’s not uncommon for the buyer to ask the seller to cover the cost of furnishing the HOA bylaws, rules and regulations and other important documents. This typically costs $200-$250 to order from the HOA
- Resale Certificate: This document outlines the accounting information the title company will need to balance and collect at closing. Like the documents package, the resale cert will usually cost $200-$250.
- Note* often the HOA will package these two together and call it a resale package that they charge $400-$500 for and will not let you parse them out or order separately.
- Transfer Fee: This is a fee typically paid for by the buyer. It’s in essence an administrative fee paid to the HOA to transfer ownership in their system. The transfer fee has a typical range of $150-$250.
- Commissions: The largest set of fees on this page will be the commissions. Typically a seller will pay 5%-6% of the sales price in total commissions between a listing agent and buyer’s agent.
- Keep in mind, with ListingSpark, you only pay $7 per day to list your home. On average our clients are under contract in less than 30 days and close within 30 days of that. In the end our sellers pay us $300-$500 total rather than the typical 3% they pay other listing agents.
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