A home is one of the biggest and most exciting purchases that you’ll make in your life. Most buyers (rightfully so) focus their attention on the down payment, monthly mortgage costs, and the price of the home. But there’s one important cost that many buyers overlook: closing.
These are some of the most common closing costs in Texas, but there may be others depending on your specific lender and loan qualifications. It is important to choose a good local lender and title company that knows your market. They will provide you with a complete list and breakdown of costs prior to your closing date and can give you at least an "estimate" up front when a contract is in place and financing has been approved.
Closing costs can vary, but they generally run from 3%-5% of the loan amount. With the U.S.’s median home price sitting at $313,200, you’re looking at $8,456.4 to $14,094 in closing costs if you put down 10%.
In other words, closing costs can be hefty and, for many buyers, takes them by surprise.
So, why are closing costs so high? What’s included?
What’s Included in Closing Costs?
Closing costs cover a number of things associated with the processing and underwriting of your loan.
Some of the most common closing costs include:
Lenders require an appraisal for a few reasons:
- They want to make sure the home is worth what you want to borrow
- They want to ensure they can recover the value of the home if you default on the mortgage
The cost of an appraisal can range from $400-$500.
Most lenders will also require an inspection, especially if it’s a government-backed loan like an FHA. An inspection ensures that the home is structurally sound and fit for living.
If an inspection turns up some serious issues, this may allow you to negotiate a lower sales price or even back out of the deal.
Inspection fees can range from $300-$500.
The loan origination fee is a big one, and it goes by a few different names: administrative fee, underwriting fee, or processing fee. As the name suggests, this is a fee the lender charges for evaluating and preparing your loan. It may cover a variety of things, including:
- Attorney fees
- Document preparation
- Notary fees
Typically, loan origination fees are about 0.5% -1% of your loan amount.
The application fee covers costs associated with processing your loan request and includes things like administrative costs and credit checks.
Mortgage Insurance Application Fee
If your down payment is less than 20% of the purchase price, you will need to have private mortgage insurance or PMI. There’s a fee for applying, and it varies from one lender to the next.
FHA, USDA, or VA Fees
If you choose a government-backed loan, such as an FHA, USDA, or VA, you will need to pay fees for these loans.
- FHA requires FHA mortgage insurance (paid monthly) and an upfront premium payment of 1.75% of the loan amount.
- USDA and VA loans require upfront guarantee fees. The USDA guarantee fee is 1%, while the VA guarantee fee can range from 1.25%-3.3%.
Lenders usually require that you pay 1-2 months of property taxes upfront if you are not self-escrowing.
Lenders require all borrowers to have homeowner’s insurance, and most will also require that you purchase your policy before closing.
Title Policy Fees
When purchasing a home, a title search is conducted to make sure that:
- The seller actually owns the property
- There are no outstanding liens or claims on the property
These fees can vary, but in Texas they are typically around $850 for every $100,000 cost of the property.
A title policy is a negotiable part of the contract. Depending on if you are in a buyer's or a seller's market, it can vary as to who will pay the Title Policy fees.
Add Survey Cost Fees
Survey cost fees are typically $500-$750 if a new survey is needed or the existing one does not meet the lenders or title company's requirements. Depending on if you are in a buyer's or a seller's market, it can vary as to who will pay for the new survey.
These are the most common closing costs, but depending on the lender and the type of loan you’re taking out, there may be other fees. Your lender will supply you with a complete list and breakdown of costs prior to your closing date. Please reach out to me if you have any other questions I can answer about this process. 817-637-8835.