How Much Are Closing Costs On A Home?

Are you ready to buy a home, but you're not sure what you should expect financially? Learn how much you may need to pay in closing costs.

Closing costs, the expenses and fees you pay at the end of your homebuying journey to finalize the purchase, can be significant. Many buyers don’t realize how much these costs amount to, so understanding them is essential to avoid surprises and better prepare.

In the U.S., closing costs usually range from 2% to 6% of the loan amount. For a $300,000 mortgage, that’s about $6,000 to $18,000. In Texas, these costs can vary; they often include specific fees like title insurance and property taxes. Knowing what to expect can help you set a savings goal and better plan your budget.

How Much Are Closing Costs On A Home?

Where you live can affect how much you pay, as certain states have higher costs due to local taxes and regulations. The home’s price is also a factor – more expensive homes come with higher closing costs. Additionally, lenders charge varying fees, so who you borrow from impacts the overall cost as well.

The type of mortgage you choose significantly affects your finances too. A 15-year mortgage offers lower interest rates, saving you money in the long term, but comes with higher monthly payments. A 30-year mortgage, meanwhile, lowers your monthly payments but usually results in paying more interest. Another consideration is that the loan term can affect your closing costs – a shorter-term loan may have slightly lower closing costs, while a longer-term loan might involve higher costs due to increases interest. It’s important to explore both options to see which best fits your budget.

Mortgage points, also known as discount points, are another key factor to take into account. You may be asking, “What are mortgage points?” These are optional upfront fees that help reduce your interest rate. Typically, one point costs 1% of your total loan amount and usually reduces your interest rate by 0.25%. For example, on a $200,000 loan, one point would cost $2,000. Paying for points can lower your long-term costs but increase what you owe at closing.

What Closing Costs Do Buyers Pay In Texas?

The following are common closing costs buyers may pay in Texas, categorized by lender-related fees and property-related fees:

Lender-Related Fees

• Application fee: Covers the lender’s costs associated with processing the mortgage application.
• Origination fee: Accounts for the lender’s administrative costs for application processing, loan underwriting, and mortgage funding.
• Underwriting fee: Includes the lender’s cost of evaluating and verifying the buyer’s financial qualifications and eligibility for the loan.
• Appraisal fee: Lenders require an appraisal to determine the fair market value of the property, ensuring that the loan amount doesn’t exceed the home’s value.
• Credit report fee: The buyer’s credit report is used to assess their creditworthiness and determine loan eligibility.

Property-Related Fees

• Title search fee: Covers the cost of a title search to ensure clear ownership of the property and uncover any potential title issues, such as liens and judgments.
• Title insurance: Lenders typically require lender’s title insurance to protect their investment in case of title defects. Buyers may also opt for owner’s title insurance to protect their ownership rights.
• Home inspection fee: While not always mandatory, home inspections are highly recommended to assess the property’s condition and identify any potential problems before closing.
• Property survey fee: A property survey, conducted by a licensed surveyor, defines the property boundaries and identifies any encroachments or easements. Lenders or buyers may request a property survey.
• Prepaid property taxes: Buyers may be required to prepay a portion of the estimated annual property taxes at closing, covering the period they will own the home during the year. Texas property taxes are paid in arrears. This means taxes for the year are due in January of the following year.
• HOA and condominium dues: If the property is part of a homeowners association (HOA) or a condominium, buyers may have to pay prorated HOA or condominium dues at closing.

In addition, while Texas doesn’t require attorney representation for closing, hiring a real estate attorney helps protect the buyer’s interests, especially in complex transactions.

What Are The Biggest Closing Costs Usually Paid By Buyers?

When buying a home, some closing costs can take a big bite out of your budget:

• Origination fees typically run about 1% of the loan amount.
• Mortgage points cost 1% of your loan amount per point. It’s a tradeoff between paying more now to save over time.
• Title insurance costs vary but usually range from 0.5% to 1% of the home’s price.
• Prepaid costs like property taxes and homeowners insurance are often due at closing. You might need to pay a few months’ worth upfront.

Smaller fees – such as those for appraisals, home inspections, credit checks, and recording documents – can also add up. Preparing for these costs helps you avoid surprises and ensures you’re financially ready to close the deal.

Why Do Buyers Pay Closing Costs?

Here’s what you’re paying for when you address closing costs:

Securing Your Loan

Lenders charge fees for handling your mortgage. This includes reviewing your application, running credit checks, and preparing all the documents. Understanding the difference between mortgage prequalification vs preapproval is key at this stage. While prequalification gives you a general estimate of what you can afford, preapproval involves a detailed review of your finances, giving lenders confidence in your ability to repay the loan.

Confirming Ownership & Value

You’ll also pay for services that confirm the property is legally clear and priced fairly.

• Title search: This checks public records to ensure the seller owns the property and that it’s free of any legal issues like liens.
• Title insurance: This protects you and the lender if any ownership disputes pop up later.
• Appraisal: This confirms the home’s value, so you don’t borrow more than it’s worth.

Protecting Your Investment

Before closing, you’ll need inspections and prepaid expenses to safeguard your purchase. A home inspection uncovers any potential issues with the property so you can make an informed decision. Prepaid costs include property taxes, homeowners insurance, and sometimes mortgage insurance.

Covering Government Fees

Local offices charge a recording fee to update the property’s ownership records in your name.

Who Typically Pays Escrow Fees?

When it comes to escrow fees, buyers and sellers usually split the cost. This is one of the most common arrangements, but the exact division often depends on negotiations. Real estate agents usually handle these details, so the costs may vary depending on what both sides agree to.

Escrow fees pay for the services needed to close the deal. Escrow companies, title companies, or even real estate attorneys handle tasks like managing the paperwork, transferring money, and ensuring everything is in order. These fees usually range between 1% and 2% of the home’s purchase price. The actual cost depends on the property’s location and the company you choose.

Can Escrow Fees Be Negotiated?

Yes, you can adjust escrow fees based on negotiations. In some cases, the seller might cover a larger share (or even all) of the fees. This often happens in a buyer’s market, where sellers make concessions to sweeten the deal. However, the amount a seller can contribute depends on the type of loan.

Ongoing Escrow Costs

Escrow doesn’t end at closing. Many lenders require an escrow account to manage your property taxes and homeowners insurance. They add these amounts to your monthly mortgage payment and handle the payments on your behalf. Lenders review escrow accounts annually, so your monthly payment might go up or down if property taxes or insurance costs change.

Navigating The Complexities Of Closing Costs With A+FCU

Buying a home is exciting, but all the fees and details during closing can feel like a lot to handle. That’s where A+ Federal Credit Union comes in. We provide clear guidance on closing costs to help simplify the process.

A+FCU offers a variety of A+ mortgage options to suit your needs. Whether you’re leaning toward a 15-year loan or a 30-year loan, our mortgage experts and financial tools can help you figure out closing costs and find the option that fits your budget.

Becoming a member at A+FCU opens the door to helpful resources and expert advice for buying a home. If you want to learn more about our services, contact us, and we’ll help you take the next step.