Understanding Closing Costs: What Every Buyer Should Know
One of the most common surprises in the home-buying process isn’t the price of the home or even the mortgage rate — it’s closing costs. Many buyers focus almost entirely on saving for a down payment and then find themselves scrambling when they see the final number due at closing.
At Mortgage Austin, transparency is one of our core principles. We walk every buyer through a detailed cost estimate at the start of the process so there are no last-minute surprises. Here’s a comprehensive breakdown of what closing costs are, what you’ll typically pay in Texas, and how to plan for them.
What Are Closing Costs?
Closing costs are the fees and expenses associated with finalizing a mortgage and transferring ownership of a property. They’re paid at the closing table — the final step in the home-buying process — and they’re separate from your down payment.
In Texas, buyers typically pay between 2% and 3% of the loan amount in closing costs, though the exact figure varies based on loan type, purchase price, lender fees, and negotiated terms. On a $400,000 home with a $380,000 loan, you might expect to pay $7,600–$11,400 in closing costs.
What’s Included in Closing Costs?
Lender Fees
These are fees charged by the mortgage company for originating your loan:
- Origination fee: Covers the cost of processing your loan (typically 0–1% of the loan amount)
- Underwriting fee: The fee for evaluating your application and approving the loan
- Rate lock fee: Sometimes charged for locking your interest rate (though many lenders don’t charge this separately)
Third-Party Fees
These are fees charged by service providers outside the lender:
- Appraisal fee: Typically $500–$700 in Texas; required by the lender to confirm the property’s value
- Title search and examination: Verifies the seller has clear ownership and no liens exist
- Owner’s title insurance: A one-time fee in Texas that protects you as the buyer from future title claims (highly recommended)
- Lender’s title insurance: Required by the lender; protects the lender’s interest
- Survey: In Texas, a survey of the property is often required, typically $400–$600
- Home inspection: Not technically a closing cost, but typically paid upfront during due diligence — usually $300–$500
Prepaid Items
These are costs paid in advance at closing that aren’t really “fees” — you’re prepaying future expenses:
- Prepaid interest: Interest from your closing date through the end of the month
- Homeowners insurance: First year’s premium paid at closing (or evidence of payment)
- Property tax escrow: Initial deposit into your escrow account (typically 2–3 months of taxes)
- Mortgage insurance (if applicable): Initial deposit for FHA MIP or conventional PMI
Government Fees
- Recording fees: Fees charged by the county to officially record the deed and mortgage documents
Texas-Specific Considerations
Texas doesn’t have a state income tax, but it does have high property taxes — one of the highest rates in the nation. Your property tax escrow setup at closing can be a meaningful line item depending on the county and home value.
Additionally, Texas is what’s known as a “non-recourse state” for purchase money mortgages, which affects certain legal aspects of the transaction. And because Texas has strong homestead protections, the closing process has some unique requirements that a Texas-based mortgage professional knows how to navigate.
Who Pays Closing Costs?
In Texas, both buyers and sellers pay closing costs — though typically different ones:
- Buyers pay lender fees, title insurance (in Texas, it’s common for the seller to pay owner’s title), appraisal, prepaid items, and recording fees
- Sellers typically pay real estate agent commissions and their own closing fees
Importantly, buyers can negotiate with sellers to cover a portion of the buyer’s closing costs — this is called a seller concession or seller credit. In slower markets, getting the seller to contribute $5,000–$10,000 toward closing costs is very achievable. We’ll help you think through this during the offer strategy phase.
Ways to Reduce or Manage Closing Costs
Negotiate a Seller Credit
As mentioned above, this is one of the most effective ways to reduce out-of-pocket costs. Even in a seller’s market, you can sometimes negotiate a credit by offering a slightly higher purchase price in exchange — which may be worth it if you’re cash-constrained.
Roll Costs Into the Loan
On some loan types (particularly VA loans), closing costs can be financed into the loan amount. On others, you can pay points upfront to reduce your rate, or do the reverse — take a slightly higher rate in exchange for a lender credit that offsets closing costs. We can model both scenarios for you.
Choose Your Closing Date Strategically
Closing at the end of the month minimizes prepaid interest (since you only pay interest for a few days). Closing at the beginning of the month extends the interest period but gives you more time before your first payment is due.
The Loan Estimate and Closing Disclosure
By law, you’ll receive a Loan Estimate within three business days of submitting a full loan application. This document breaks down all estimated closing costs in detail. Three business days before closing, you’ll receive a Closing Disclosure with final, confirmed numbers.
We strongly encourage buyers to review both documents carefully and ask questions about any line item that’s unclear. If you’d like to walk through a sample estimate before you even start the process, reach out to us — we’re happy to show you what to expect.
Ready to get a real estimate for your situation? Request a quote here or get pre-qualified and we’ll build you a full cost breakdown based on your actual numbers.
Frequently Asked Questions
Can closing costs be added to my mortgage in Texas?
In most cases, no — standard purchase mortgages require closing costs to be paid from your own funds or via a seller credit. However, VA loans allow financing of the VA funding fee, and in some cases a lender credit (in exchange for a slightly higher rate) can offset closing costs. We’ll show you all the options.
Are closing costs negotiable?
Some are, some aren’t. Government recording fees and appraisal costs are fairly fixed. Lender fees, on the other hand, can vary significantly between lenders — which is why comparing Loan Estimates across lenders is worthwhile. Our Second Look program is a great way to see how we compare to a quote you’ve already received.
What is owner’s title insurance and do I need it in Texas?
Owner’s title insurance is a one-time policy that protects you against future claims on the ownership of your home — things like undiscovered liens, forged documents, or errors in public records. In Texas, it’s customary for the seller to pay for the owner’s policy, though this can be negotiated. We strongly recommend it.
Do I pay closing costs upfront or at the closing table?
Certain items like the appraisal fee and home inspection are paid upfront during the process. The bulk of closing costs are due at the closing table, paid via wire transfer or certified check. We’ll give you the exact amount needed well before closing day.
How does a seller credit work?
A seller credit (or concession) is an amount the seller agrees to contribute toward the buyer’s closing costs. It reduces the net proceeds the seller receives at closing. Seller credits are negotiated in the purchase contract and have limits based on loan type and down payment — typically 2–9% depending on the program. We’ll walk you through what’s possible for your specific loan.
Ferrando Financial LLC | Mortgage Austin | NMLS# 2403080 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to creditworthiness and program guidelines.
