Closing Costs, What Are They?
What Are Closing Costs | Houston, Texas Real Estate
Closing costs are the expenses involved in a real estate transaction above the actual price tag. These fees are usually paid close to the end of the purchase or sale of a home. If it’s your first time buying a home, it’s a good idea to get proper consultation from a realtor you trust regarding the various closing costs you have to pay for your purchase.
There are two main categories for closing costs in a real estate transaction. These are costs that a home buyer normally pays and the costs that are usually reserved for the seller. Depending on your negotiation, you may have your realtor ask the other party to cover some or all of the closing costs you’re going to pay. If you’re in a position where you want to close fast on a property, you can offer to cover the seller’s closing costs. Should you have questions regarding this topic, whether you’re a homes buyer or seller, please don’t hesitate to contact our team today. We’ll be glad to provide you with the information you need and, if required, represent you in your transaction.
Calculating Closing Costs for Home Buyers
There are several guidelines you can follow to calculate your closing costs when buying a home. According to a study from the Ascent, for a property priced around the $200,000 range in Texas, you can expect to pay around 1.37% of the property value. This means if you’re looking to sell your home for $240,000, your estimated closing cost would be approximately $3,288. As Texas has no real estate transfer tax, you can expect this rate to be relatively similar for most cities in the state.
When considering a home purchase in Houston and other major cities in Texas, however, you must consider that some of these costs may be different. Due to the overall demand and supply of properties and local guidelines in major cities such as Houston, closing costs tend to be a bit higher than the state average. Depending on the price range for the property you’re looking to purchase and the overall mortgage you plan to get, the closing cost for your property may range anywhere between 5% to 10% of the total property price. If you want to get a more accurate representation of your total closing costs, you’ll want to set up a consultation with the realtor you’re working with for your transaction.
Common Closing Costs for Home Sellers in Houston, Texas
- Real Estate Agent Fees – The commission that you pay your real estate agent and realtor to sell your home. The average for this cost in Texas is around 6% of the sale price of your home.
- Property Taxes – Real Estate taxes in Texas are paid in arrears which is the total amount of days in the year you are the property owner. For example, if you own a home for 200 days of the year, your property tax payment will be prorated based on that number.
- Unsettled Bills – Before closing a deal, it’s standard practice to settle any outstanding bills that the property may have. This includes any utility bills such as electricity, water, garbage, etc. You’ll also want to pay off any fees from your Homeowner’s Association.
- Attorney Fees – These fees are paid to the legal counsel that finalized the real estate transaction. Texas does not require a lawyer to be present at the close of a real estate deal. Most title companies and escrow providers usually offer this service, in which case you’ll pay them for the settlement fee of your property.
- Title Search Fees – The title search fee covers the cost of looking into the property’s history in question and ensuring that the seller is the actual owner. The title search also provides that the home is clear of any liens and other potential legal issues for the buyer. You’ll also want to consider a Municipal Lien Search to identify other unrecorded property issues, including code violations, expired permits, utility balances, and more.
- Title Insurance – The title insurance protects the buyer from issues that may arise from any possible outstanding liens that were undiscovered during the title search. This fee is usually paid by the seller in Texas but can be negotiable depending on the terms discussed during the negotiation of your deal.
Common Closing Costs for Home Sellers in Houston, Texas
- Loan Originating Fees – If you’re planning to purchase a home with a loan, several closing costs are associated with your mortgage. Your Loan Originating Fees cover the cost your lender pays the bank when creating a new loan for you. This cost ranges between 0.5% to 1.5% of the sale price and varies depending on the buyer’s credit score and other risk factors involved in the transaction.
- Credit Report – This cost will cover the fees involved with pulling the current credit score of the buyer to identify the amount you can loan from them.
- Appraisal – An appraisal fee is another typical requirement by your lending company that involves having an appraiser confirm the actual value of the home you’re looking to purchase. This fee ensures that the amount they are lending you is within the actual value of the property.
- Survey Fees – A survey is not required in Texas, but some lenders will ask for one before approving your mortgage.
- Recording Fees – This fee covers all costs associated with officially recording the sale and transfer of ownership of a property. Upon completion of the deed transfer, it will be listed in the public record.
- Home Inspection – If you’re interested in purchasing a home, having the property inspected for potential issues is a great way to ensure you’re getting good value for your money. Having a professional look at a house to ensure it is up to code and there are no potential financial pitfalls when making your buying decision. You’ll also be able to identify unusual wear and tear and needed repair costs that you can have the seller cover during the negotiation.
How to Save Money on Closing Costs
- Negotiate Commission Fees – Talk with your agent initially and identify how much equity you get to keep for yourself once at the end of the day. This negotiation is crucial for home sellers as they usually cover the commission fee for the realtors of both parties.
- Lender Promotions – Lending companies usually run promotions to make them more competitive, and savvy buyers will look for these when looking for a lender partner.
- Shop Around – There are several lending companies throughout Houston, and talking with several of them will usually yield great results for you. Asking for a loan estimate and letting them know you’re shopping around will usually get you the best loan terms possible.
- Buyer’s Market Advantage – If you’re in a buyer’s market, you may have the seller cover some of the closing costs when buying a property from them. You can negotiate to deduct your closing costs from the overall price of the home.