Closing costs are where a purchase stops being abstract. The number that appears on the disclosure is larger than most buyers expect, and a good deal of it is not a fee at all. Knowing which lines are charges, which are money you owe anyway, and which are genuinely negotiable is the difference between a nasty surprise and a manageable one.
The four groups
Everything on a closing disclosure falls into one of four buckets, and treating them as one number is why the total feels arbitrary.
Lender charges. Origination, underwriting, processing, discount points if you buy the rate down, plus the appraisal and credit report. This is the group with the most variation between lenders and the one most worth shopping.
Title and settlement. The owner's title policy, the lender's policy, endorsements, the escrow or settlement fee, and the survey if a new one is required. In Texas the basic premium is set by the state, which changes how you shop this.
Government and recording. Recording the deed and the deed of trust. Texas has no state transfer tax on residential sales, which is a genuine saving compared with a number of other states.
Prepaids and escrow. The first year of homeowners insurance, interest from closing to month end, and several months of property tax deposited into the escrow account. These are not fees. This is your own money being collected early.
Why the prepaid number is bigger here
Buyers moving from states with low property tax are routinely caught out by this line. Texas funds local government largely through property tax, so the annual bill is large, and your lender collects a cushion of it up front plus a monthly share thereafter.
Two further wrinkles make it worse than the estimate. The first is that lenders often base the initial escrow on the seller's current tax bill, which reflects their exemption and their capped assessed value. Once the property is reassessed at your purchase price, the real bill can be materially higher, and the escrow shortfall arrives about a year later as a payment increase. The second is that if the property sits in a MUD, there is another line on the bill entirely.
Both are covered in more detail in what Texas property tax costs an out-of-state buyer and what a MUD tax is. The practical instruction is the same: budget the escrow from the reassessed figure, not the seller's.
The title convention in Central Texas
In most of the Austin area the seller customarily pays for the owner's title policy, though this is a custom rather than a rule and it is negotiated in the contract like everything else.
The important thing to know is that the basic title insurance premium in Texas is promulgated by the Texas Department of Insurance. Every title company charges the same premium for the same coverage on the same purchase price. Shopping title companies on premium is therefore pointless. Shopping them on the escrow and settlement fees around the premium, and on whether they will actually answer the phone in the last week, is not.
What is genuinely negotiable
- Seller concessions toward your closing costs. In the current market, with roughly 5.9 months of inventory and more than half of active listings having taken a price cut, this is a normal request rather than an audacious one. Lenders limit how large a credit can be, so agree the structure with your loan officer before you write it into an offer.
- Lender fees. Origination and processing charges vary between lenders for identical loans. Get more than one loan estimate and compare the same page of each.
- Discount points. Optional by definition. Whether buying the rate down is worth it depends entirely on how long you keep the loan.
- Who pays the survey. Frequently negotiated, and sometimes avoided entirely if the seller's existing survey is acceptable to the title company with a T-47 affidavit.
- The escrow fee. Often split by custom, and often adjustable.
What is not negotiable: the title premium, recording fees, and your prepaids, which are yours regardless.
Read the loan estimate properly
Within three business days of your application the lender must give you a Loan Estimate on a standard form, which exists precisely so you can compare lenders line by line. Page two is the one that matters. Some charges may not increase at closing, some may increase within a tolerance, and some may change freely. Knowing which is which tells you where an estimate is soft.
Compare estimates on the same day where you can, since rate-dependent lines move daily and two quotes a week apart are not a comparison.
The ones nobody warns you about
HOA transfer and resale certificate fees on a property in an association. A new survey when the existing one will not do. The first year of insurance, which in Texas has risen and is worth quoting early rather than assuming. And, for new construction, whether the builder's incentive requires using their affiliated lender and what that costs relative to an outside one.
What we do about it
We ask for the tax bill and the HOA documents early, so the escrow figure in your estimate resembles the one you will actually pay, and we negotiate concessions as part of the offer rather than raising them late. If a lender's estimate looks light in a place where estimates are usually light, we will say which line and why.