Escrow & Closing Costs – Q & A

Buying a home in Texas can be complicated and costly. Understanding escrow and closing costs is key to determining the amount you need to bring to the closing table. With that in mind, here’s a guide to answering your most pressing questions about escrow and closing costs.

What is Escrow?

Escrow is an account a neutral third party holds during real estate transactions. The escrow company acts as a safeguard between the parties involved, ensuring that all funds are disbursed appropriately and that all items related to the transaction have been completed before the sale is final.

What is Included in Closing Costs?

Closing costs cover many home expenses, including title searches, appraisals, survey fees, transfer taxes, legal fees, and more. Depending on your lender, you may also need to pay loan origination fees and points.

Who Pays for Escrow and Closing Costs?

In general, buyers are responsible for paying both escrow and closing costs. However, sellers often make concessions in their offering price to offset some of these expenses. Before making an offer, you must talk with your realtor about who will be responsible for which fees.

Are there any Other Fees I Should Know About?

Yes, there are likely other fees associated with your home purchase. Talk to your lender about potential costs such as private mortgage insurance (PMI), deed recording fees, homeowner association fees, prepaid interest, and other applicable taxes.

Where Can I Find More Information?

For more detailed information regarding escrow and closing costs in Texas, speak with an experienced real estate agent or look up specific regulations online. Knowing what to expect ahead of time can help minimize stress and ensure that everything goes smoothly when it comes time to close on your dream home.

How can I save on closing costs?

Studies show that the closing costs, which can average 2 to 3 percent of a total home purchase price, are often more costly than many buyers expect. But there are some ways to save:

  • Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller.
  • Get a no-point loan. The trade-off is a higher interest rate on the loan, and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
  • Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate, saving you on the amount of cash you need upfront. * Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges.
  • Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the purchase.
  • Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.

Where do I get information about closing costs?

For more on closing costs, ask for the “Consumer’s Guide to Mortgage Settlement Costs,” Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120, or call (415) 974-2163.

What are closing costs?

Closing costs are the fees for services, taxes, or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest, and property taxes. Unless these charges are rolled into the loan, they must be paid when the home is closed.

Who pays the closing costs?

Closing costs are either paid by the home seller or the home buyer. It often depends on local customs and what the buyer or seller negotiates.

Why do I need a title report?

As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures no liens are placed against the prior owners or any documents that will restrict your use of the property.

A preliminary title report allows you to review any impediment preventing a clear title from passing to you.

When reading a preliminary report, checking the extent of your ownership rights or interest is important. The most common form of interest is “fee simple” or “fee,” the highest type of interest an owner can have in land.

Liens, restrictions, and interests of others excluded from title coverage will be listed numerically as exceptions in the report.

You also may have to consider the interests of any third parties, such as easements granted by prior owners that limit the use of the property. Some buyers attempt to clear these unwanted items before purchase.

A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as building and zoning laws.