Who Pays Closing Costs in Texas, the Buyer or the Seller?

One of the most common questions in any real estate transaction is who is actually responsible for paying closing costs. The honest answer is that both the buyer and the seller pay closing costs, but they are paying different things and the amounts are not equal. Understanding which costs fall on which side of the transaction, and where there is flexibility to negotiate, can make a meaningful difference in what you actually walk away with or bring to the closing table.

What the Buyer Typically Pays

Buyers in Texas carry the heavier load when it comes to closing costs, which is part of why the two to five percent range can feel like a gut punch when you first see the number. The bulk of what buyers pay is tied to the mortgage itself. Lender fees like the origination fee, underwriting fee, and any discount points if you bought down your rate are all on the buyer's side of the ledger. So is the appraisal, the credit report fee, and any application fees the lender charges.

Beyond lender costs, buyers pay their portion of title fees including the lender's title insurance policy which is required by most lenders. They also pay prepaid items like the first year of homeowner's insurance, property taxes that go into the escrow account, and prepaid interest from the closing date to the end of the month. Recording fees for the new deed and deed of trust are typically the buyer's responsibility as well.

In total, a buyer in Lubbock on a $300,000 purchase using conventional financing might be looking at anywhere from $6,000 to $12,000 in closing costs depending on the lender, the loan type, and the specifics of the transaction.

What the Seller Typically Pays

Sellers in Texas have their own set of closing costs and the biggest one by far is real estate commission. Beyond that, sellers typically pay for the owner's title insurance policy which protects the buyer against any title issues that surface after closing. This is a Texas custom that is not universal across all states and it is worth knowing as both a buyer and a seller going into a transaction.

Sellers also pay their prorated share of property taxes up to the closing date, any outstanding HOA fees or transfer fees if the property is in a homeowners association, and any agreed-upon repairs or credits that were negotiated during the inspection process. If the seller has an existing mortgage they are paying off, that payoff amount plus any prepayment penalties if applicable come out of the proceeds at closing as well.

Total seller closing costs in Texas excluding commission typically run between one and three percent of the sale price. Add commission on top of that and the total coming out of a seller's proceeds is significantly higher than what most sellers fully anticipate before they sit down with a listing agent.

Where It Gets Negotiable: Seller Concessions

Here is where buyers and sellers often have more flexibility than they realize. A seller concession is when the seller agrees to contribute a specific dollar amount toward the buyer's closing costs as part of the purchase agreement. It does not mean the seller is writing the buyer a check. It means the seller agrees to credit that amount at closing which reduces what the buyer needs to bring to the table.

For buyers who are cash-tight after the down payment, asking for a seller concession is a legitimate and common strategy. The trade-off is that you are often offering closer to or at the asking price in exchange for that concession, so the seller is still getting their number but you are not having to come up with as much cash at closing.

In the Lubbock market right now where inventory has been increasing and buyers have more negotiating leverage than they did a couple of years ago, seller concessions are more viable than they have been. Sellers who want to move their home have more reason to work with buyers on closing costs than they would have had in a tight inventory environment.

Lenders do put limits on how much of a concession a seller can contribute toward closing costs. For conventional loans the limit is typically between three and nine percent of the purchase price depending on your down payment amount. FHA loans cap it at six percent. VA loans cap it at four percent for concessions that go toward closing costs specifically. Your lender can tell you exactly what the limit is for your loan type.

Can You Roll Closing Costs Into the Loan?

In some situations yes. Certain loan programs and lenders allow closing costs to be financed as part of the loan rather than paid out of pocket at closing. The trade-off is that you are increasing your loan balance and therefore your monthly payment and the total interest you pay over the life of the loan. It is a tool worth knowing about but not always the most cost-effective choice depending on how long you plan to stay in the home.

How to Know What You Owe Before Closing Day

You should never walk into closing day without already knowing your exact number. As a buyer, your lender is required to send you a Closing Disclosure at least three business days before closing that itemizes every cost and credit involved in the transaction. Read every line. Compare it to the Loan Estimate you received at the beginning of the process. If something has changed significantly or something does not make sense, ask about it before you show up to sign.

As a seller, your title company will provide a settlement statement showing what is coming out of your proceeds. You should review that before closing day as well so you know exactly what you are netting from the sale.

The Bottom Line

Both sides pay closing costs in Texas. Buyers pay more in raw dollar terms because of the lender-related fees tied to the mortgage. Sellers pay less in fees but often more in total when commission is factored in. Both numbers are negotiable to varying degrees and both deserve to be fully understood before anyone sits down at the closing table. Know your numbers going in and there will be no surprises on the way out.