# What First-Time Buyers Get Wrong About Closing Costs

One of the most frequent surprises first-time home buyers face in Burleson and across the DFW Metroplex is discovering how much cash they need at closing beyond their down payment.

During my career in the Marine Corps, mission success depended on thorough planning and accounting for every variable before executing an operation. Purchasing your first home requires that same disciplined preparation. Many buyers save diligently for a down payment, only to be blindsided by closing costs just weeks before closing day.

Understanding what closing costs cover, how much to budget, how to lower these expenses, and how VA loans treat closing costs will ensure you step up to the closing table with full confidence.

Here is what every first-time buyer needs to know about closing costs.

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## 1. What Are Closing Costs and What Do They Cover?

Closing costs are the processing fees, administrative charges, prepaids, and third-party expenses required to complete a real estate transaction and transfer property ownership.

When you buy a home, multiple professionals work behind the scenes to inspect the property, verify title history, evaluate market value, and process mortgage financing. Closing costs cover those services.

Typically, closing costs fall into four main categories:

- **Lender Fees:** Application fees, origination charges, underwriting fees, credit report pulls, and discount points if you choose to buy down your interest rate.
- **Third-Party Service Fees:** Property appraisal fees, surveyor costs, home inspection fees, and flood certification checks.
- **Title and Settlement Fees:** Title search fees, lender title insurance, owner title insurance policy costs, closing attorney or escrow settlement fees, and government recording charges.
- **Prepaids and Escrow Accounts:** Advance payments for local Texas property taxes, homeowner insurance premiums, and initial reserves required to fund your mortgage escrow account.

## 2. How Much Should You Budget for Closing Costs?

A common rule of thumb for buyers in Texas is to budget between **2 percent and 5 percent** of the total home purchase price for closing costs.

For example, on a home priced at $350,000, buyer closing costs typically range between $7,000 and $17,500, depending on loan structure, property tax timing, and insurance choices.

It is important to remember that closing costs are separate from your down payment. If you choose a conventional mortgage requiring a 3 percent down payment on a $350,000 home ($10,500), you will need your down payment *plus* your closing costs at closing, bringing your total required cash reserves to $17,500 or more.

Your lender must provide a **Loan Estimate** within three business days of receiving your loan application, detailing estimated closing expenses. Three days before closing, you will receive a final **Closing Disclosure** showing your exact required cash to close.

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## 3. How VA Loan Closing Costs Differ

For military veterans, active duty personnel, and eligible surviving spouses using a VA home loan, closing cost rules differ significantly from conventional or FHA financing.

While the VA loan program allows for zero down payment, it does not mean zero closing costs. However, VA rules include powerful buyer protections:

- **Prohibited Fees:** VA guidelines strictly prohibit buyers from paying certain fees that conventional buyers often cover, such as lender attorney fees, loan processing fees, or document preparation fees charged directly by the lender.
- **VA Funding Fee:** Most VA borrowers pay a one-time VA Funding Fee at closing. This fee helps offset the cost of the loan guarantee program to taxpayers. The fee varies based on military service category, down payment amount, and whether you have used a VA loan previously.
- **Funding Fee Exemptions:** Veterans receiving VA disability compensation for service-connected disabilities, as well as Purple Heart recipients, are fully exempt from paying the VA funding fee.
- **Ability to Roll Fee Into Loan:** Eligible veterans can roll the VA Funding Fee directly into the total mortgage loan amount rather than paying it in cash at closing.

## 4. Strategies to Reduce Your Out-of-Pocket Closing Costs

First-time buyers do not always have to pay every closing cost dollar out of pocket. Here are effective strategies to reduce your upfront cash requirements:

### Negotiate Seller Concessions

In many transaction scenarios, buyers can request seller concessions as part of the purchase contract. Seller concessions occur when the seller agrees to contribute a set dollar amount or percentage toward the buyer's closing costs.

- **VA Loans:** Sellers can contribute up to 4 percent of the home purchase price toward buyer closing costs and prepaid items.
- **Conventional Loans:** Seller contribution limits range from 3 percent to 9 percent, depending on your down payment percentage.
- **FHA Loans:** Sellers can contribute up to 6 percent toward closing costs.

### Shop for Title and Settlement Services

While lender fees are fixed by your lending institution, you have the right to shop around for certain third-party title and settlement services. Comparing rates between reputable title companies can save hundreds of dollars.

### Time Your Closing Date

Schedule your closing near the end of the month. Mortgage interest accrues from your closing date to the end of that month. Closing on the 28th requires significantly less upfront prepaid interest than closing on the 5th.

### Explore Down Payment and Closing Cost Assistance

Texas offers several state and local first-time homebuyer programs that provide grants or second mortgages to cover down payment and closing costs for qualifying buyers.

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## Plan Your Purchase with Confidence

Navigating real estate financing does not have to be overwhelming. When you know the exact numbers ahead of time, you can make clear, confident decisions for your financial future.

As a retired Marine and local Compass agent in Burleson, my priority is ensuring you are fully informed and prepared at every step. If you are preparing to purchase your first home or want to explore your VA loan options in the DFW Metroplex, let's sit down and run the numbers together.

Send me a message, and lets connect.

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Mike Ritrovato | Compass | Retired Marine  
760-468-7930 | Mike.Ritrovato@Compass.com  
TREC License #0797145  
Serving Burleson and the DFW Metroplex