So, you’ve decided to purchase a home, congratulations! 

                            Buying a home is very exciting, but do you know what the closing costs associated with buying a house are? 

Today we are going to talk to you about the closing costs associated with buying a home in the North Texas, Dallas area. Closing costs do vary some from state to state, but we are going to give you a good general idea of the typical closing costs you can expect. We can’t stress enough to make sure you take note of these and ask your agent or lender to give you some rough estimates to factor in your budget before you put an offer on a house. 

The first question we usually get asked is, what is the down payment? Do I have to put down 20% every time?  The first step is to check with your lender to see what loan program best fits your needs. We see as low as 3% down (even 0% with VA or special circumstances) to as high as a full on cash offer! However, buying a house is like any other business transaction, and there are costs associated with buying a new home. It is important to know that these closing costs are in addition to your down payment. Knowing and anticipating this ahead of time is key, and we are going to list them out for you so that you are not surprised at the closing table.

  1. Escrow: What is escrow? Escrow is a third party who handles the contract, disperses funds, and keeps everyone honest and legal!  Only until all parties have signed the contract and hand it over to escrow can the contract be changed. The cost of escrow is going to vary based on the price of your home. The higher purchase price of the home, the higher escrow costs are going to be, but it is typically about 1% of the contracted price. 

  2. Title Costs: The next fee you are going to look at is title costs. The first and most expensive title cost is the title policy. This usually runs at .7%-1% and is a negotiable expense that is usually paid for by the seller. The only time you should be paying the title policy fee as a buyer is if your realtor isn’t doing his or her job. We always seek to negotiate that the seller should pay the title policy fee!  The rest of the title costs are miscellaneous fees. There is an attorney doc prep fee that runs about $250, and there is a title process fee that runs at about $350 for both the buyer and seller. These fees are non negotiable and will be the same regardless you’re buying a home for $1,000 or $1,000,000. The total of these secondary title costs are going to be usually just under $1,000.

  3. Loan Fees: Surprise, surprise, rate isn’t the only consideration to consider with your mortgage broker or lender as they will also have closing costs that will vary from lender to lender. These fees depend a little bit on what type of loan program you’re in as well.  But, in general, there is going to be a loan origination fee, a processing fee, and a doc prep fee that are going to be associated with your loan program and lender. It is important to discuss these different fees upfront when choosing your lender so that you know EXACTLY what you are paying for and that you are not getting taken advantage of. 

  4. Pre-Paid Items: Depending on your down payment amount and loan program, your lender may require you to come to closing with some prepaid items. These are items that your lender will have to collect at closing so they can pre-load a new escrow account to pay your property taxes and insurance when they are due. 

  5. Homeowners Association Fees: The next important fee to look at is the HOA fees. Not every home is going to be in an HOA, but many of the nicer and newer homes in the North DFW Suburbs will. When you’re in an HOA there is going to be an HOA transfer fee and some other miscellaneous fees that come with it. We are always  going to try to negotiate that the seller pay for the HOA transfer and document fees, but on occasion there may  be some HOA fees that are required to be paid by the buyer. 

  6. Option Period: When you go under contract in Texas, you are going to have two checks that we surrender right away. One is the Option Fee, which is a negotiated amount of money, typically ranging from $100-$500, that is surrendered directly to the sellers of the house. That money is our consideration for being able to do our inspections and do diligence to make sure that we want to buy the house. If we do not move forward with the house, that money is for the sellers to keep. If we do move forward with it, this locks down the house for us to do all of our inspections while we ensure the house does not go to someone else! 

 The second check is the Earnest Money Fee that we turn over to the Title Company to start the title work and ownership transfer process.  It  is a negotiated amount that is usually around 1% of the purchase price of the home. The tradition is that in the event that we were to walk away from the home for a reason not delineated in the contract, that percentage would pay for about one months worth of expenses to the homeowner,  in consideration for taking the home off the market. But, as you know, a good realtor is going to work really hard to protect that money for you! When we close, that money will go toward the down payment and other closing costs that you incur at the closing table. 

  1. Home Inspections: During that option period, you are going to want to get your home professionally inspected. The initial general  home inspection is usually going to cost between $350-$500 depending on the inspector and options. Then, depending on the circumstances, you may  want additional follow up inspections such as a foundation inspection, electrical inspections, HVAC inspection,etc. in which case those may be additional costs. As with most situations, if we can justify the need, we may be able to negotiate these additional costs to be paid for by the seller. This part of the home buying process is in our opinion extremely necessary to be sure you know what you are buying, but will occur only after you have received an accepted offer for the property. I have heard horror stories of homebuyers discovering expensive defects on a home AFTER they close on it. Don’t let this nightmare come true for you!

 

Knowing all of these closing costs upfront will allow you to better prepare for the total amount of money you’ll need to be prepared for to buy your new home and you will be fully prepared for the amount of cash you need to bring to the table. It is super important to look at these costs even before getting in the car to look at new homes because we don’t like bad surprises coming up at the closing table that catch you off guard! If you’d like a better idea of what your closing costs will be, please reach out to us and we can help break it down for you.