What Closing Costs Are Buyers Expected to Pay?

Today I want to discuss closing costs for buyers—what they are and how they work for buyers, specifically.

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The vast majority of buyer closing costs are lender related. The lender you’re working with should provide you with a loan estimate showing the line-by-line breakdown of all your fees within 30 days of your submitting the loan application. I encourage you to study this document and to ask your lender any and all questions you have about it.

The first line you’re likely to see on your closing disclosure is going to be a loan origination fee. This fee covers the cost of obtaining a loan, which includes the lender’s underwriting fee, processing fee, funding fee, etc. I’ve seen that fee vary from as little as $200 up to 1% of the loan amount. Some lenders waive that fee altogether, usually in exchange for charging you a slightly higher interest rate; there are some circumstances where such an approach can be beneficial.

If you’re going with a government-backed loan such as an FHA, VA, or USDA loan product, you’ll be required to pay an additional fee:

FHA insurance premiums are at about 1.75% of the loan amount
The USDA loan will charge you a guarantee fee, which is about 2% of the loan amount
The VA’s guarantee fee varies from 1% to 3%, based on your down payment

Appraisal and credit report fees will most likely be collected from you before closing. An appraisal fee will typically run at about $500 or $600 in our area; your credit report fee will probably run as little as $50 to $100.

Depending on the loan, you’ll be required to pay an additional fee.

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In Texas, we use title companies to facilitate a transaction. Sellers in a transaction will pay an escrow fee, which is typically around $400. Also, just like how sellers get to purchase a title insurance policy to ensure to the buyer that their property is clean and clear, buyers get to purchase a similar insurance policy, only for their lender. Based on your lender and the type of endorsements that they require, this policy will probably cost somewhere around $300.

Beyond those, you can expect to pay around another $200 in miscellaneous administrative fees, such as for deed recording, document preparation, etc. These aren’t technically closing costs, but they’re usually taken from you at closing, so I usually like to address them, as well.

It is very customary in Texas to pay for a full year of home insurance for the property you’re purchasing, which is collected at closing. Additionally, your lender is likely to require creating an escrow account in which they basically take your own money and store it in that separate account for your own protection; those funds will be used to pay your property taxes or PMI (premium mortgage insurance) if you’re going with a conventional loan product with a less-than-20% down payment.

If you have any further questions about the closing costs expected of buyers to pay, don’t hesitate to reach out to me anytime.

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