Whether you’re buying or selling a home, one thing you can be sure of is that it will be one of the largest financial transactions of your life. Many individuals focus on the cost of purchasing or selling the property itself and give little thought to an often-overlooked expense that arises during the transaction: closing costs. Understanding the average closing costs for a home in Houston can help you budget properly and avoid surprises when it is time to make a real estate decision.
In this guide, we aim to help first-time homebuyers, experienced real estate investors, and individuals looking to sell their current homes. We will explain exactly what is included in Houston closing costs, who pays what, and how you may even be able to save money.
Understand Home Closing Costs
Closing costs are the fees and expenses incurred to finalize the sale of a property, separate from the cost of the home itself. These fees cover various services involved in the transaction, from loan processing by the lender to the work performed by the title company to transfer ownership of the property. Most closing costs are typically due on the day the sale is finalized.
In Texas, both homebuyers and sellers are responsible for certain closing costs. However, sellers are often responsible for a larger share of the transaction-related expenses.
What Is The Average Home Closing Cost In Houston?
In Houston, the average closing cost is influenced by several factors, including the home’s purchase price, the type of loan being used, lender fees, and seller concessions.
On average:
Houston homebuyers typically spend between 2% and 5% of the home’s purchase price on closing costs. For a $300,000 home, this could range from $6,000 to $15,000.
Home sellers may spend between 6% and 10% of the home’s sale price on closing costs, primarily due to real estate agent commissions and title-related fees
These rates are highly subject to change due to the Houston market, property tax rates, and loaner fees.
Breakdown Of Buyer Closing Costs in Houston
Lender Fees
These are the charges your mortgage lender applies to process, underwrite, and fund your loan. Common lender fees include:
- Origination Fee: Usually 0.5-1% of the loan amount
- Underwriting Fee: Usually $400-$900
- Application Fee: $0-500, varies by lender
- Rate Lock Fee: If you lock in your rate for an extended period, you might have to pay this fee
Pro Tip: Here at Reliance Financial, we do not charge application or processing fees, a substantial savings in comparison to a standard bank or credit union!
Title and Escrow Fees
A title insurance policy is mandatory in Texas to protect both the lender and the buyer. Title-related charges in Houston include:
- Owner’s Title Insurance: 0.5-1% of the purchase price (one-time fee)
- Lender’s Title Insurance: $200-700
- Title Search Fee: $75-200
- Escrow / Settlement Fee: $300-700
Government and Recording Fees
Recording Fees: $25-250 to the Harris County clerk for recording your deed and mortgage
Transfer Taxes: Texas does not charge state transfer taxes, which can be an advantage over many states.
Prepaid Costs and Escrow Deposits
These are not technically fees but instead funds due at closing:
- Prepaid Owner’s Insurance (12 months): $1,200-2,500+, depending on home
- Property Tax Escrow (2-3 months): The effective tax rate in Harris County averages from 2.09-2.5% annually of the property value, so expect to pay two to three months at closing
- Prepaid Mortgage Interest: The interest on your loan from your closing date to the end of the month
- HOA Dues (if applicable): Prorated HOA dues may be collected at closing in certain neighborhoods
Appraisal and Inspection Fees
In this process, appraisal and inspection fees are involved. Here’s the one:
- Home Appraisal: $450-650 (often paid upfront)
- Home Inspection: $300-500 (also often paid upfront)
Survey Fee
Many Texas title companies will also require an up-to-date survey of your property. This fee in Houston typically ranges from $400 to $700 for a typical home.
Seller Closing Costs In Houston
Though we are looking from the buyer’s point of view, it’s helpful to understand that sellers are typically responsible for:
- Real estate agent commission: The norm used to be 5-6% of the sale price (although this is becoming complicated with the NAR settlement), but now the terms are negotiable.
- Owner’s title policy for the buyer: It is customary in Texas for the seller to pay for the buyer’s owner’s title policy.
- Attorney or closing fees: usually $200 – $500.
So as you can see, after all is said and done, sellers could be responsible for paying as much as 8-10% of the sale price of their home.
Ways to Lower Your Closing Costs In Houston
Yes, lowering your closing cost is possible. Houston buyers are cutting closing costs using strategies such as these:
- Negotiation with the Seller for Concessions
This tactic requires the seller to agree to offset some of your closing costs as part of the purchase agreement. Typically, in a cooler market, a seller can offer between $3,000 and $10,000 toward the buyer’s closing costs.
- Select a Lender Without Any Fees
Several lenders, such as Reliance Financial, do not charge buyers lender fees such as processing and application fees, potentially saving you hundreds without altering your terms.
- Comparison shop Title Companies
Because in Texas, the buyer gets to pick their own title company, by shopping among two or three title companies in Houston, you can potentially save between $200 and $600.
- Finance Closing Costs
Depending on the specific loan program you select, you may have the ability to roll closing costs into your mortgage. While this doesn’t necessarily lower the amount you pay upfront, it keeps a lot of cash out-of-pocket at closing but increases the size of your loan.
- First-Time Homebuyer programs
First-time homebuyers who qualify can take advantage of a variety of programs from the City of Houston or Harris County to help with their down payment or closing costs. The Houston Homebuyer Assistance Program (HAP) offers a deferred loan worth as much as $50,000 for approved buyers.
What Is The Difference Between Houston Closing Costs And Texas Closing Costs?
While many states without a state transfer tax are often considered seller-friendly when it comes to closing costs, Texas presents a slightly different picture. Higher-than-average property taxes can result in larger prepaid escrow deposits, which may significantly increase the amount due at closing.
Harris County, which includes Houston, has one of the highest property tax rates in Texas. As a result, homebuyers can expect escrow deposits at closing to be higher than those in many other Texas cities.
Closing Day in Houston: What to Expect
Three business days before closing, your lender must provide you with a Closing Disclosure, a document that clearly lists all charges and credits you will be responsible for. Use this time to examine and ask any questions you have to ensure that the disclosure matches the original loan estimate.
Closing Day in Houston, you can expect to:
- Sign the deed, mortgage note, and other loan documents
- Pay for your closing costs and down payment. You can pay with a cashier’s check or a wire transfer
- Receive the keys to your new home
The actual signing appointment can typically be anywhere from 1 to 2 hours long. All documents are signed at the title company’s office.
How Reliance Financial Helps Houston Homebuyers Save?
Reliance Financial, we’re working hard to provide home buyers with a clear and affordable mortgage in Houston.
No application fees, no processing fees, best rates of multiple lenders, local loan officers familiar with the Houston area, pre-approval letter in hours, updates on loan status, let’s give you the most favorable results at a reasonable cost and with minimal anxiety to close.
Let us make the process work for you, no matter if you are a first-time buyer, a move-up buyer in Katy or The Woodlands, or an investor in Houston Heights.
Final Thought
Knowing what to expect for an average home closing cost in Houston is a huge help in navigating your buying process. Plan on an average 2%-5% of your home’s sale price for your closing costs and allocate any funds needed for prepaid costs such as homeowners’ insurance and property taxes.
Question your lender about any fees listed on your Loan Estimate before signing. The better you’re informed, the better you can negotiate, and the better your closing day will be.
FAQs
What are the average closing costs in Houston?
The majority of home buyers in Houston spend 1.5 to 5 percent of the purchase price on closing costs. The exact figures depend on various factors like loan type, price of the house, and lender charges.
Who pays closing costs in Houston?
Both sellers and buyers pay closing costs in Houston. Buyers are usually responsible for costs associated with the lender, as well as any prepaid items. Sellers are generally responsible for agent commissions and title costs.
Can closing costs be financed into a mortgage?
Some sellers are willing to include specific closing costs in a loan. This can depend on the loan type, lender requirements, and home equity you have.
Are closing costs negotiable?
Yes. Buyers can negotiate fees with lenders, shop around for the best rates, or request sellers to cover some of the closing costs through concessions to offset the out-of-pocket expense.
What is included in closing costs in Houston?
Some common closing costs in Houston can include: loan origination fees, appraisal fees, survey costs, title insurance, filing and recording fees, homeowners’ insurance, property taxes, and escrow deposits.
How to reduce closing costs?
You can save on closing costs by shopping around for lenders and their rates, negotiating with sellers, asking lenders to cut their fees, and looking over your Loan Estimate to find redundant charges.
When do you pay closing costs?
Closing costs in Houston are usually paid on the day you close, and ownership officially transfers to you. They are typically paid with a cashier’s check or wire transfer.
