What are Closing Costs and How Much Will I Pay? 

If you are buying a property in Texas, there are costs associated with closing on the transaction in addition to the price of the property. These closing costs are paid at the closing of a real estate transaction when the legal title to a real property is transferred from the seller to the buyer. All parties to the transaction sign the necessary documents at this time to transfer the property to the new owner. This article explains what closing costs are and answers frequently asked questions about these fees.  

What are closing costs?  

Closing costs are fees that are charged by the lender and other third parties. These costs include prepaid costs and nonrecurring charges.  

Examples of prepaid costs are:  

• Pro-rated interest from the date of closing until first month’s payment 
• Private mortgage insurance (if you paid less than 20% down)  
• Homeowner’s insurance  
• Flood and/or wind insurance 
• Discount points (explained below) 

The nonrecurring fees include, but are not limited to the following:  

• Loan origination fee 
• Attorney’s fees 
• Recording fees 

• Appraisals  
• Survey fees 
• Underwriting 
• Credit reports  
• Title insurance 
• Inspection charges 

Some of these terms and fees may be unfamiliar, so let’s go into further detail.  

What is a loan origination fee?  

A loan origination fee is what the lender charges for processing your loan paperwork. These fees are used to offset the cost of underwriting your loan and can vary based on factors such as your credit score and the length of the loan. This fee is a percentage of your original loan amount.  

What is escrow?  

At closing, you may be asked to make an escrow deposit. It is a prepayment of several months’ worth of property taxes and private mortgage insurance which is placed into an escrow account.  

The escrow account allows you to pay these charges incrementally over time as part of your mortgage payment. The mortgage lender holds the funds for you and pays the property taxes, private mortgage insurance, homeowner’s insurance, property taxes, and other insurance policies when they are due.  

What is a discount point?  

A discount point is a one-time fee charged by your lender in which you may “buy down” your loan’s interest rate. Each point is equal to 1% of your mortgage amount.  

How much are closing costs?  

Closing costs average between 2 and 5 percent of the purchase price of your new property. The law requires lenders to give you a “good faith estimate” of the anticipated closing costs when you apply for a loan.  

The final closing cost amount should not be drastically different than the amount provided in your good faith estimate. However, the fees charged by each lender vary so it pays to shop around. In addition, your lender may be negotiable on some fees, so be sure to ask if want to lower your fees.  

Who pays closing costs?  

Usually, the buyer pays the majority of the closing costs mentioned above. However, it is increasingly common for closing costs to be negotiated in the purchase agreement between a buyer and seller. This is something you could discuss with your real estate agent or broker. 

Sellers remain responsible for loan payoff costs; taxes for transferring title; their attorney’s fees; real estate commissions; any outstanding liens or judgments; unpaid homeowner’s association dues; and prorated property taxes until the title changes.   

Can I choose the title insurance company?  

Yes. Your lender will likely suggest or recommend a title company, but you ultimately have the final say. You should also ask what types of title insurance are being offered. For more information on title insurance, please read LINK TO TITLE INSURANCE ARTICLE. 

For more information about buying land in Texas or the closing costs associated with it, contact Texas Land Brokers. Tony Malley of Texas Land Brokers is an attorney and real estate broker who can assist you with all aspects of your real estate transaction. 

Contact us at (512) 788 – 9227 !