Closing Costs When Buying a Home: What Texas Homebuyers Need to Know
You found the home. Your offer is accepted. You're excited to finally be on the road to homeownership.
Then you start hearing about closing costs.
Appraisal fees. Title fees. Prepaid taxes and insurance. Lender fees. Recording fees. Suddenly, you may be wondering:
How much money am I actually going to need to close on this house?
Closing costs are a normal part of buying a home, but they don't have to catch you by surprise. Understanding them early—and knowing which options may be available to help with them—can make it much easier to prepare for closing day.
Quick Answer: How Much Are Closing Costs?
Closing costs vary based on your loan program, purchase price, property, location, insurance, taxes, lender, title company, and other factors.
You may sometimes hear closing costs estimated as a percentage of the loan amount, but there isn't one percentage that applies to every homebuyer.
That's why one of the best things you can do is ask your loan officer for an estimate based on your actual scenario rather than relying on a general online calculator.
And remember: your down payment and your closing costs are not the same thing.
What Are Closing Costs?
Closing costs are expenses associated with completing your mortgage and real estate transaction in addition to your down payment.
Depending on your transaction, they may include things such as:
Lender fees
Appraisal fees
Credit-related fees
Title services and title insurance
Recording fees
Prepaid homeowners insurance
Property taxes
Escrow funding
Discount points, if applicable
Other third-party or transaction-related charges
Not every borrower will have the same costs.
Some expenses are associated with obtaining the mortgage, while others are related to the property, title work, government charges, insurance, taxes, or prepaid expenses.
What's the Difference Between Closing Costs and Cash to Close?
These terms are easy to confuse.
Closing costs generally refer to the various costs and prepaid expenses associated with completing the transaction.
Cash to close is the amount you'll ultimately need to bring to closing after accounting for the different components of your transaction.
Your cash to close can be affected by your:
Down payment
Closing costs
Earnest money or other deposits already paid
Seller credits, when permitted
Lender credits, when applicable
Down payment or closing-cost assistance
Other credits or adjustments
This is why we encourage buyers to focus on the whole financial picture, rather than looking only at the down payment.
When Will I Know How Much My Closing Costs Are?
After you apply for a mortgage, you'll receive a Loan Estimate showing important information about the proposed loan, including estimated costs.
For most covered mortgage transactions, the lender is generally required to provide or mail the Loan Estimate within three business days after receiving the information that constitutes an application.
Before closing, you'll also receive a Closing Disclosure with final information about your mortgage and closing costs. For covered transactions, borrowers generally must receive the Closing Disclosure at least three business days before consummation.
Take the time to review these documents and ask questions about anything you don't understand.
How Can I Pay for Closing Costs?
Depending on your loan program and individual transaction, there may be several ways to handle closing costs.
1. Pay Closing Costs With Your Own Funds
The most straightforward option is paying your required cash to close with your own eligible funds.
Your lender and title or settlement company will provide instructions about the amount needed and acceptable method of payment.
One reason to start discussing cash to close early is so you're not scrambling to move money at the last minute.
Also, avoid making unusual transfers, large deposits, or moving money between accounts without first talking with your loan officer. Mortgage lenders may need to document the source of funds used in the transaction.
2. Ask About Seller Contributions
Depending on the loan program, transaction, contract, and applicable limits, the seller may be permitted to contribute toward certain buyer closing costs.
This is commonly referred to as a seller concession or seller contribution.
For example, rather than negotiating only on the home's sales price, a buyer might negotiate for the seller to contribute toward eligible closing expenses.
Whether this makes sense—and how much a seller may contribute—depends on the loan program and transaction.
Your Realtor and loan officer can help you understand how a potential seller contribution could affect your specific purchase.
3. Explore Lender Credits
Another potential option is a lender credit.
In certain situations, a borrower may choose an interest-rate structure that provides a lender credit toward eligible closing costs.
The tradeoff is important to understand: receiving a larger lender credit can be associated with a higher interest rate than another available pricing option.
Instead of asking only:
“How can I pay the least at closing?”
also ask:
“What does this option mean for my monthly payment and total borrowing costs?”
Your loan officer can compare scenarios with you.
4. Explore Down Payment and Closing-Cost Assistance
Some qualified homebuyers may have access to programs designed to assist with down payments and/or eligible closing costs.
Texas has multiple homebuyer assistance programs, and additional options may be available depending on where you live, your income, occupation, first-time homebuyer status, loan type, and other eligibility requirements.
Not every program works for every buyer, so it's worth exploring these options before you begin making offers.
At TLP Mortgage, we can help qualified buyers explore available homebuyer assistance programs and understand how the assistance works with their mortgage.
5. Gift Funds May Be an Option
Depending on the mortgage program and your circumstances, eligible gift funds may be permitted toward a down payment and/or closing-related funds.
Gift-fund requirements vary by loan program, including who can provide the gift and what documentation is required.
If someone plans to help you financially with your home purchase, tell your loan officer early so the funds can be handled and documented correctly.
Can Closing Costs Be Rolled Into the Mortgage?
This is one area where online information can become confusing.
You generally should not assume that purchase closing costs can simply be added to your mortgage balance.
What is permitted depends on the loan type and transaction.
Certain costs may be financed in particular situations—for example, some loan programs allow specific upfront fees or mortgage insurance amounts to be financed—but that is different from simply adding every closing expense to a purchase mortgage.
There are also different rules for refinances.
If minimizing your upfront cash is important, ask your loan officer to show you the available options for your specific loan program.
How Can I Prepare for Closing Costs?
The earlier you plan, the better.
When you're preparing to purchase a home, consider saving for more than just your down payment.
Your homebuying budget may also need to account for:
Earnest money and other deposits
Inspection expenses
Appraisal expenses
Down payment
Closing costs and prepaid expenses
Moving costs
Utility deposits
Immediate repairs or purchases
Emergency savings after closing
Keeping some reserves after buying the home can be just as important as getting to the closing table.
Don't Drain Your Savings Just to Buy the House
It's easy to become focused on one goal:
“How much house can I qualify for?”
We encourage buyers to consider another question too:
“What housing payment and upfront investment am I comfortable with?”
Those aren't always the same number.
Owning a home comes with expenses beyond your mortgage payment. Appliances break. Property taxes and insurance can change. Maintenance happens.
Your mortgage strategy should consider the life you want to have after you get the keys.
Frequently Asked Questions About Closing Costs
Are closing costs the same as a down payment?
No. Your down payment is the portion of the home's purchase price you're paying rather than financing. Closing costs include expenses associated with completing the mortgage and real estate transaction.
Can a seller pay my closing costs?
Seller contributions toward certain closing costs may be permitted, subject to the mortgage program, transaction, contract, and applicable contribution limits.
Can my lender help with closing costs?
Potentially. Lender credits may be available depending on your loan and pricing options. There can be a tradeoff between receiving a credit and the interest rate available, so compare the overall costs carefully.
Are there closing-cost assistance programs in Texas?
Yes. Qualified buyers may have access to state or local programs that can assist with down payment and/or eligible closing costs. Income, purchase price, credit, property, loan type, and other requirements can apply.
How much cash will I need to close?
It depends on your specific transaction. Your down payment, closing costs, prepaid expenses, deposits, credits, assistance, and other adjustments can all affect your final cash-to-close amount.
When should I start planning for closing costs?
Ideally, before you start shopping for homes. A mortgage consultation can help you estimate both the down payment and potential closing costs so you have a clearer idea of your total homebuying budget.
Know Your Numbers Before You Start Shopping
One of the best things you can do before buying a home is understand the complete cost of the transaction—not just the home's price or down payment.
At TLP Mortgage, our goal is to help you understand your financing options before you're sitting at the closing table.
We'll walk through your estimated down payment, closing costs, monthly payment, and potential assistance or credit options so you can make an informed decision based on your goals.
Whether you're a first-time homebuyer in San Antonio, a veteran using your VA benefit, or a Texas buyer preparing for your next home, we're here to help you understand the numbers and create a mortgage strategy that makes sense for you.
Ready to find out what buying a home could look like for you? Connect with the TLP Mortgage team to explore your options.
Loan programs, rates, terms, credits, assistance programs, and eligibility requirements are subject to change and borrower qualification. Seller contributions and gift funds are subject to loan-program requirements and applicable limits. This information is for educational purposes and is not a commitment to lend.
