So you’ve found a house that fits all of your needs: the right amenities, the right location, the right price, and now you’re ready to make an offer. But not so fast! If you’re considering buying land in Texas, you need to understand all of the additional costs that can come into play when buying a home.
When you buy a house or piece of land, the down payment for the property isn’t all you’ll need to pay. Closing costs are fees associated with real estate transactions, with estimated costs based on your loan balance. Keep reading to learn more about closing costs and how much you can expect to pay for closing costs on land purchases in Texas.
When you’re ready to start looking for the land of your dreams, SRC Land can help you find the perfect lot for sale in Texas.
Key Takeaways
- Closing costs are out-of-pocket expenses that the buyer and seller must pay to carry out a land ownership transfer or home purchase.
- While the buyer’s common closing costs include appraisal fees and prepaid expenses, sellers often cover the real estate commission and mortgage insurance, while both may pay for lender’s title insurance and other third-party fees.
- Closing costs typically range from 2% to 6% of your loan amount for buyers and are typically paid by the closing date, about 30 to 60 days after accepting the offer.
- By using owner financing, you can save on credit reporting fees and other closing costs. You may also be able to negotiate to have part of your costs covered by the seller.
What Are Closing Costs?
In Texas, both buyers and sellers pay closing costs on land purchases. Closing costs are meant to cover the expenses associated with the process through which land changes ownership.
Closing costs vary, but you might be expected to pay attorneys’ fees, appraisal fees, and lender fees.
Buyer’s Closing Costs
- Credit report fee – Your lender will access your credit so you qualify for a loan, typically costing roughly $50 to $60.
- Loan application fee – If you plan on getting a traditional loan, you will need to pay to apply.
- Home inspection – While not typically required, it’s a good idea to have a property inspected before purchasing.
- Appraisal fee – Appraisal fees pay for an appraiser to identify the property’s value, which is typically required by lenders. Fees can range between $300 and $500 based on certain land characteristics such as size, location, and property type. Even if it isn’t mandatory, you should still get it done to ensure that it’s a fair market value and avoid overpaying.
- Prepaid costs – When a buyer acquires their loan, the lender might have them cover expenses, including property taxes and homeowners’ or rental property insurance, ahead of time. The lender will list these fees in a calculation of closing costs known as the Good Faith Estimate. Your insurance and property tax burden may be lower in Texas thanks to special tax laws.
- Loan Origination Fees – Loan origination fees are upfront charges the lender will charge to compensate for fees paid for a new loan application. These loan origination fees are often 1% of the rate of the mortgage amount and can be discussed if the risk factor of both the loan and the borrower is reasonable.
Closing Costs Sellers Typically Pay
- Homeowners association documentation – This documentation lays out the rules and regulations new property owners will need to follow.
- Mortgage payoffs – Sellers may need to pay off a mortgage in full before selling the property.
- Real estate agent commissions – If a land seller hires a real estate agent to sell their property, they will need to pay for that service at closing.
- Outstanding bills – Any outstanding bills associated with the property will need to be paid.
- Seller concessions – Sellers may offer to pay for part of a buyer’s closing costs to sweeten the deal.
- Private mortgage insurance – This is paid by lenders to protect them in case borrowers default on their loans.
What Buyers and Sellers Might Pay
- Attorney fees – Sellers or buyers may hire a real estate attorney to ensure the purchase is legal and airtight.
- Escrow fees – If your purchase utilizes an escrow company, you may need to pay a fee.
- Recording fees – Governments require land buyers to register property documents, such as mortgage loan agreements.
- Notary fees – Most often paid by the buyer, these are charges for the administration of the purchase.
- Title search fees – A title search is used to guarantee that the property is free of any and all obligations and that no individual has claimed the house due to unpaid dues, legal suits, or other things.
- Title insurance – Title insurance is a type of indemnity insurance provided by title companies that insures against losses caused by defects in the property’s title, such as liens, outstanding taxes, mortgages, and violations belonging to prior owners.
- Home warranty – A home warranty pays for the replacement of home equipment damaged through everyday wear and tear.
Typical closing costs can be higher than you might expect, so it’s important to get a good idea of what you’ll need to pay before the day actually comes.
What Does Closing Cost on Land Sales? Determining Average Closing Costs
The amount you can expect to pay in closing costs can differ from home to home, and the price paid by sellers is often different from the price paid by buyers. Closing costs vary depending on the loan amount and loan type, with different loans and closing processes leading to different costs. With this in mind, cash buyers may pay reduced fees.
While buyers can expect to pay between 2% and 6% of the home’s sale price in closing costs, sellers’ typical closing costs are, averaging out at between 6% and 10% of the sale price. You can get a quick idea of your estimated closing costs by multiplying the price of the home by the upper and lower average percentage.
About Your Closing Disclosure and Estimating Closing Costs
Your final closing cost amount should be fairly close to a figure provided by your lender in your closing disclosure documents. These documents should include details such as your monthly payment amount, total loan amount, administrative costs, and any upfront expenses. On the other hand, early in the process, you can get a rougher idea of your potential closing costs as part of your loan estimate documents.
Other Costs To Consider When Buying Land in Texas
Closing costs aren’t the only expense that you should keep in mind when buying a home in Texas. While closing costs do cover the additional fees and expenses you can expect to pay when you buy the property, there are other things you’ll need to start paying soon after the purchase, including:
- Homeowners’ insurance
- Utilities
- Maintenance
- Property taxes
It’s a good idea to start planning for these expenses before you decide on which property to buy. For instance, if considerable maintenance is needed or utilities are particularly high, it could have a major impact on your decision.
On the other hand, land buyers should also consider the costs they won’t have to pay when buying land in Texas, thanks to the state’s unique tax regulations. While some states assess transfer taxes on real estate sales, Texas does not. This means you won’t have to pay any prorated property taxes as part of closing. You will still have to pay for some limited government fees, such as a recording fee for deed transfers.
How to Save on Texas Closing Costs
From survey fees and prepaid interest payments to escrow account fees and home warranty costs, closing expenses can add up quickly. It’s worth taking time to consider tactics for reducing what you may owe.
Owner Financing for Cheaper Closing and Competitive Interest Rates
One of the best ways to reduce what you owe in closing costs is to buy land through seller financing or owner financing. Owner financing is a method for selling land in which the buyer and seller make a loan agreement directly with each other, rather than relying on a bank or other lender as an intermediary. Traditional mortgage closing costs, including things like loan application fees, can be avoided through seller financing.
Rather than paying the high costs associated with getting a loan from a traditional lender, you can gain access to favorable interest rates and lower total closing costs with seller financing. Avoid high monthly mortgage payments and mountains of red tape by buying owner-financed land in Texas.
Can Closing Fees Be Included in My Loan?
You may be able to negotiate your loan terms to include payment of closing costs by the seller. Many closing costs can be assigned to the seller through negotiations, though your ability to negotiate for these concessions will depend heavily on the local real estate market and the other elements of your offer.
Payment Assistance Programs for Down Payments and More
There are discount, grant, and loan programs available to help you pay for closing costs. First-time buyers and certain public service workers, such as teachers and firefighters, may qualify, with more limited resources for repeat buyers.
Find the Right Seller-Financed Land for Sale in Texas
The purchase price is far from the only thing that will impact the cost of land ownership. From title fees to home insurance premiums, there are countless expenses that may be associated with closing a land purchase. The good news is that there are ways to save.
If you’re looking to buy land in Texas, seller financing might just be the solution you’ve been looking for to make that dream a reality. Seller financing lets buyers access favorable rates with lower closing costs, even if their credit is poor.
Reach out to the team of real estate experts at SRC Land to learn more about your options for buying affordable land in Texas. We can help you find the perfect place at the perfect price.
