If you’re buying a home in Texas or planning on buying a home then you should be aware of the expenses associated with the buying process.
There are many unexpected costs. Many of my buyers are surprised when I mention some of these, even though some go towards your home purchase, others you can end up losing if you decide not to move forward with your purchase.
In this article I will explain the common expenses, which ones go towards your home purchase, which ones can vary, and others that maybe don’t apply to you.
What expenses should you expect when buying a home in Texas?
Embarking on the journey of buying a home in Texas is an exciting venture, but it’s vital for buyers to be well-informed about the various expenses that come along with it. In this comprehensive guide, we will delve into the expenses associated with purchasing a home in the Lone Star State.
Upfront Expenses When Buying A Home In Texas
Earnest Money
The initial expense for a buyer in the home-buying process commonly involves placing an escrow deposit, also known as an earnest money deposit. In Texas, this negotiable amount is submitted with an offer. If your offer is accepted you are required to submit your earnest money to the title company’s within 3 days of an executed contract.
FYI, an executed contract occurs when both the buyer and seller agree to the terms of the contract and have signed all required contract documents.
Escrow deposits are held by the entity managing the closing, such as a title company, and are credited towards the buyer’s closing costs. The typical escrow deposit ranges from 1% to 3% of the purchase price.
Option Fee
The option fee is sent to the title company along with your earnest money.
The option fee is usually between $50-$100 a day depending on the nature of the market. In a sellers market you can expect to pay at least $100/day and you’ll likely be requesting 3-5 days for your termination option period.
During the option period, you are under contract with the seller’s of the property. During this period of 3-10 days you will do your due diligence. Get inspections, choose your lender/lending program, negotiate repairs or concessions, and finalize contract terms. At any point during the option period you can terminate the contract without penalty. The only thing you lose is your option money and you’ll get your earnest money back.
Should you move forward with the contract your option money will go towards your closing costs similarly to the earnest money.
Home Inspection
Prior to closing, buyers can anticipate incurring expenses for a home inspection, an advisable step though not mandatory. It’s crucial for buyers to be informed about the necessary repairs or replacements the prospective property requires.
Depending on the contract terms, sellers may be obligated to address identified issues from the inspection. Conversely, buyers have options such as negotiating repairs, requesting a repair credit, or even withdrawing from the contract within the inspection period, all contingent on the contract terms.
The expense of a home inspection typically falls within the range of $400 to $1,000, with the final cost subject to variables like the property’s size, location, and inspection scope. Additionally, opting for additional inspections such as mold, sewer, WDO (wood destroying organisms), or a 4-point inspection can increase the overall expenditure.
Appraisal Fee
For buyers securing a mortgage, it’s customary to incur the initial expense of a home appraisal. However, for cash buyers, an appraisal is usually discretionary. The cost of a home appraisal can vary based on factors such as property complexity, location, and loan type, typically averaging between $500 and $750.
Survey
Buyers financing their purchase should expect an additional expense before closing: the cost of a property survey. This survey confirms compliance with zoning regulations and ensures neighboring properties haven’t encroached with features like pools, fences, or structures. While not mandatory for cash buyers, a survey is an option. Survey expenses typically range from $500 to $1,000, contingent on the property’s size and location.
Homeowners Insurance
Unless a buyer is making a cash purchase for their new home, they must secure homeowners insurance before closing. Certain insurance agencies may demand payment before closing, while others might accept it at closing.
Even though cash buyers are not obligated to obtain homeowners insurance, it’s strongly advised. The expenses related to homeowners insurance, including additional coverage, can vary significantly across Texas. It’s crucial for buyers to comprehend their policy’s specifics. Are they adequately insured? Is flood insurance necessary? What is their deductible?
Expenses Paid at Closing In Texas
There are several expenses associated with buying a home in Texas that are paid at closing, and here are the top expenses to consider.
Down Payment
A significant part of a buyer’s closing costs goes toward their down payment, and the exact amount can vary widely based on their financial circumstances and the type of loan they’re utilizing. Traditionally, many buyers aim to provide a substantial down payment of 10-20% of the property’s purchase price.
However, not all buyers can afford such a large down payment. Some opt for smaller down payments, like 3% of the home’s purchase price, which is especially common among first-time homebuyers. Additionally, there are specialized programs like VA loans that offer eligible veterans and service members the chance to buy a home with a 0% down payment.
Lending Fees
When a buyer secures a mortgage, it’s crucial to be aware of the various expenses tied to this financial transaction. These fees, which can vary depending on the lender and specific circumstances, significantly contribute to the overall cost of obtaining a mortgage.
Typical fees encountered by mortgage applicants include charges like an application fee, credit fee, processing fee, and/or origination fee. These fees can range from hundreds to thousands of dollars depending on the lender. In addition to these lender-associated fees, there are also non-negotiable state fees that must be paid, contributing to the total cost of securing a mortgage in Texas.
Another significant aspect of mortgage transactions involves “escrow.” In cases where the lender is responsible for collecting and paying the buyer’s property tax and homeowners insurance bills, they often require the borrower to contribute funds at closing. These funds are held in an escrow account and are used to cover these recurring expenses as they become due, ensuring that the buyer stays current on these financial obligations.
Title Fees and Searches
A title search is a thorough examination to ensure that no one else has a valid claim or debt on the house you want to buy. It’s conducted to confirm the property’s ownership is clear and free of any hidden issues with the title.
This process involves reviewing public records like deeds and mortgages to verify who owns the property and whether there are any unresolved legal matters associated with it. In essence, a title search is a crucial step in home buying to ensure you’re acquiring a property without any legal entanglements or debts attached to it.
Closing Company Fees
The company responsible for overseeing the closing, typically a title company or a real estate attorney, will charge escrow fees or settlement fees. Their role is to ensure all the state’s legal requirements are met during the closing process, and they typically charge between $500 to $1,000 for their services.
HOA Fees
When purchasing a home in a homeowners association (HOA), buyers should be aware of potential expenses associated with it. Fees may include pro-rated HOA fees, an application fee, and a capital contribution. Pro-rated HOA fees cover a portion of the annual or monthly dues paid by all homeowners for maintaining shared areas. An application fee, which might be collected before closing, aids in processing new residents, while a capital contribution is a one-time payment to support the HOA’s financial stability.
Costs After Closing On A Home In Texas
Moving Costs
Another financial consideration when buying a home in Texas is the expenses related to moving. Whether it’s a local or long-distance move, it comes with its associated costs. Even if a buyer opts for a DIY move, such as renting a truck and handling the packing and transportation themselves, expenses still accumulate. These costs may include rental fees for moving vehicles, packing supplies like boxes and tape, fuel costs, and any potential assistance hired for heavy lifting or loading.
For those planning longer-distance moves, additional considerations may involve overnight accommodations, meals, and other incidentals during the journey. Therefore, it’s essential for homebuyers to budget for moving expenses when planning their transition to a new home in Texas.
Ongoing Expenses
After buying a home in Texas, there are ongoing expenses associated with owning a home that buyers need to consider, such as:
- Mortgage payments
- Property taxes
- HOA fees
- Homeowners and mortgage insurance
- Home maintenance and repairs
- Utilities
Final Thoughts
Buying a home in Texas entails a range of expenses that go beyond the initial purchase price. By understanding the key expenses associated with purchasing a home, buyers can make informed financial decisions. From closing costs and property taxes to insurance and ongoing maintenance, being prepared for these financial responsibilities will help buyers navigate the world of homeownership successfully.
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