Sugar Land area.

National average articles are good places to start to get an estimate. But as you get farther along in the beginning stages of the buying process, you need to have a better idea of how much money you’ll need to have saved up.

Although, it is possible to buy a house without spending any money, that is not always the case. Most buyers will spend between 2-3% in closing costs and a minimum of $3,000 once your offer is accepted.

Many factors can affect how much you’ll have to pay. Some of them you can control and some of them you can’t. This article will breakdown the closing costs of buying a house and discuss all of your expenses including the surprise upfront fees that shock buyers.

After reading this you will know if you have enough money to start right now or if you need to save a little bit more.

Closing costs

Closing costs are expenses you incur during the process of buying your house. It will include lender and title company fees.

It is the buyer’s responsibility to pay for their own costs. Every dollar accounted for is because you’re buying. However, there are ways you can reduce your out of pocket expenses.

Seller concessions

In your contract, you will ask the seller to pay for your closing costs. You can either subtract it from the offer which nets the seller less money. Or increase your offer then subtract the closing costs. This one will net the seller more money and is most likely to get picked.

Lender credits

This money comes from the lender. They will increase your interest rate in proportion to how much money they’re giving you.

Not all lenders will offer this. If you need assistance, ask about it at the very beginning before you get too far into the pre-approval process.

Down payment assistance programs

These income based programs will pay for your down payment and closing costs if you can qualify. Not every lender can offer you down payment assistance. They have to be on the approved list so make sure you ask them about it about the beginning.

Realtor concessions

This one is a touchy subject with real estate agents because no one likes giving a portion of their paycheck away. I've done it before, but only under special circumstances when I've offered.

With this option, a portion of your realtor’s commission will go towards paying for your closing costs.

New construction houses

Builders will offer to pay all or some of your closing costs if you use their preferred lender. Always ask for a lender’s estimate because their interest rates are usually higher and the money they give you could be used up by paying for all types of junk fees.

Upfront costs

After your offer is accepted, you’ll have to pay the earnest money deposit, option fee, inspection, appraisal, and survey.

Everything, except the cost of the inspection, will be subtracted from your closing costs when you buy the house. If you cancel the contract within 7-10 days, everything except the inspection and option fee will be refunded back.

Earnest money deposit

The earnest money deposit is a consideration of good faith. It lets the seller know you're serious about buying their house. There is no required amount for the deposit. It’s usually 1% of the purchase price.

You can offer more to make your offer stand out or you can also offer less. It doesn’t have to be 1%; although that is the most common.

Option fee

The option fee gives you the right to terminate the contract for any reason within 7-10 days. The option fee amount is based loosely to how much your offer is. A $250,000 house won’t have the same option fee as a $400,000 house.

Some realtors want to charge a certain amount of money per day. For example: $50 a day for 7 days. The buyer would have to pay $350.

My way is a more straightforward and can be cheaper for my buyers. Whatever the first number is, I add two zeros. This is how I do it: a $250,000 house will have a $200 option fee. A $400,000 house will have a $400 option fee.

Inspection

An inspection is a thorough examination of your house by a trained and licensed professional. The inspector will look for current defects and signs of potential problems in the future.

Expect to pay a minimum of $350 for a general inspection. The price will depend on the size and age of the house. Separate specialized inspections for plumbing or foundation will cost $150-200 more.

Appraisal

An appraisal is an official valuation of how much a house is worth. With government loans, it also functions as a health and safety inspection to make sure the house is habitable.

The bank orders an appraisal to make sure it doesn’t loan you more money than what the house is worth. The appraisal also protects you from overpaying.

Appraisal fees will cost $600-800. The price doesn’t increase for bigger houses. The price is based on how much the house costs.

Survey

A survey is a report that shows where a house’s property lines are. The cost can vary from $500 to over $1,000 depending on the lot size or if permanent structures like an in ground swimming pool was added.

Getting a survey is not always required. The lender will decide if they want to use the existing survey or get a new one. If the survey is not legible, is over 10 years old, or altered by adding a permanent structure or more land; the lender won’t accept it.

You can get a survey even if the lender accepts the old one.

Realtor fees

These are expenses your real estate agent might charge you. Not all buyers will have realtor fees. It’s up to the realtor and is totally negotiable. VA buyers legally can’t pay any realtor fees.

Commission

There is no mandatory commission percentage a real estate agent must be paid; however, some agents won’t work for less than 3% of the purchase price.

Sellers decide how much they want to pay realtors. So if you hire a realtor that requires 3% and the seller is offering 2%, you would be responsible to pay the extra 1%.

Your realtor will let you know about her commission rate in the buyer representation agreement. If you sign the agreement and that clause is in there, you’ll be responsible to pay the difference.

Administration fee

Administration fees are charged for a variety of reasons. The realtor could be passing the cost of hiring help onto the buyer, it could be a retainer in case the buyer doesn’t buy, or just a way to make some extra money.

They will charge between $200-700. Sometimes it will be refunded back at closing if it’s considered a retainer.

Closing Disclosure

The closing disclosure (CD) is an outline of the fees you are charged and any concessions you were given. The estimated cash to close is how much you will have to pay. If there’s a negative sign in front of the number, you will get a refund.

For example: cash to close: $5,285 (you will pay)

Cash to close: -$5,285 (you will get a refund)

Loan Origination fees

Lenders charge buyers loan origination fees to process a new loan. They are usually 1% of the purchase price. Not all lenders will charge origination fees and when they do, it doesn’t have to be the full 1%.

I encourage buyers to negotiate origination fees or find a lender who has a lower one.

Mortgage Points

Mortgage points are fees you will pay to the lender in exchange for a lower rate.

It’s also called discount points or buying down the rate. 1 point is equal to 1% of the loan amount. You don’t have to pay for a full percent. You can do 0.25%.

For example; if your loan is $300,000 and interest rate is 5%; you’d pay $6,000 to get a 3% rate. It would cost $750 to get a 4.75% rate.

Title fees

Title fees are charged by the title company to research and insure your house against future claims of ownership.

Title fees include things like transfer tax, recording, tax certification, and title search fees, but the most expense one is title insurance.

Title insurance protects you and the lender against problems with the house. These problems can include liens, encumbrances, or defects. If something is discovered after you buy the house, the title company is responsible to defending the title.

The title search fee is 1% of the home's purchase price. Total title fees are around 1.25-1.5%

Homeowners insurance

You will pay 14-16 months of homeowners insurance premiums when you close. 12 months will be paid to the insurance company at closing and the remaining months will be put into your escrow account as a cushion in case a payment is missed.

Shop around for insurance to get the best coverage. Your current insurance provider might not be the best option for your homeowners insurance.

Prepaid Interest

Prepaid interest is the amount of interest you owe from the date you close to when you make your first mortgage payment.

Your interest closing costs will be less if you closed at the beginning of the month because your first payment would be the very next month. Buy you close in the middle or towards the end, you’ll pay more because the days between your first mortgage payment will be more.

For example: May 5 closing- you’d pay 26 days of interest

May 15 closing- you’d pay 46 days of interest

May 31 closing- you’d pay 30 days of interest

Property Taxes

2-4 months of prorated property taxes will be collected. The previous owner will pay all months prior to you closing on the house.

100% disables veterans don't have to pay property taxes. If your lender files the exemption, you won't have any property taxes in your closing costs.

Your lender will pay the county at the beginning of the year from your escrow account.

Down Payment

Yes, your down payment is part of your closing costs. Not all buyers will have the same down payment amount because the mortgage could be different and they might choose to put more down.

Only 2 mortgages don't have a down payment. They are VA and USDA. You can get a conventional loan for as low as 3%. An FHA loan is 3.5%, but it's easier to qualify for.

Mortgage insurance premium

FHA, USDA, and VA all have some sort of upfront premium you have to pay. Most people roll the upfront fee into the loan, but you can add it to your closing costs.

Anyone who puts down less than 20% will have to pay mortgage insurance. It protects the mortgage company in case you default on the loan. None of the monthly payments go towards the principle. It’s a way to slowing pay 20%.

Federal Housing Administration (FHA) loans have mortgage insurance premium. It’s 1.75% the of the loan amount.

United States Department of Agriculture(USDA) loans haVE a guarantee fee that is 1% the price of the house.

Veterans Affairs (VA) loan has the VA funding fee. It charges 2.3%, but can be waived if the veteran is at least 10% disabled.

Conventional loans have private mortgage insurance, but it doesn't have any upfront costs you have to pay at closing.

Homeowners Association

Homeowners association fees (HOA) are used to pay for the upkeep of your neighborhood. HOAs in Houston are ran by businesses so a portion of your fees will go to the management company.

Most HOA fees are $500-700 a month. New construction and golf course subdivisions will be closer to $1,000. Your mortgage company will not put these fees into an escrow account. You are responsible to pay them at the beginning of the year.

Monthly Mortgage Payments

Although, the mortgage payment isn't money you pay upfront or is part of your closing costs, it is something you will have to consider when thinking about the cost to buy a house in Houston.

Your mortgage payments will include the principle, interest, property taxes, and home insurance (PITI). Unless you have an adjustable rate mortgage, your interest rate will never change.

Your property taxes and home insurance will change which will affect your monthly mortgage payment. Taxes are assessed in Texas every 3 years, but Harris County doesn't allow increases to be more than 3.5%.

Conclusion

As you can see, there's more expenses than what the average person thinks it will cost to buy a house in Houston. The good news is that you're now more prepared than most buyers.

Ideally, before you submit an offer, you will already have the money for your earnest money deposit, option fee, inspection fee, appraisal, and survey. The survey is the only one you might not have to pay for.

If you have questions about anything you read in the article, click the chat feature to instantly get in contact with me.

Cost to Buy a House in Houston