Prorations at closing are adjustments that fairly divide ongoing expenses between the buyer and seller based on the number of days each party owns the property during a billing period. The most common prorations are property taxes, homeowner's insurance, HOA fees, and utility bills.
If you close mid-month, the seller pays their share of that month's expenses, and you pay yours. Prorations appear on your Closing Disclosure and are calculated by the title company.
How Prorations Work
If you close on the 15th of the month, the seller owns the home for 14 days and you own it for 16 days. Any expenses that cover that month (taxes, insurance, HOA, utilities) are split proportionally. The seller credits you for the days they owned it; you are responsible for your days.
The title company handles all calculations using the closing date as the dividing line. They determine each party's share based on a 365-day year (or 360-day year in some cases) and show the resulting credits and debits on the Closing Disclosure.
Property Tax Prorations
Texas property taxes are typically paid annually or semi-annually. At closing, the seller credits you for the portion of the year they owned the home. If taxes have not been paid yet, you will be responsible for the full year and receive a credit from the seller for their portion. This can result in significant credits at closing.
Because Texas has some of the highest property tax rates in the country, these prorations can be substantial. On a $300,000 home with a 2.5% tax rate, annual taxes are roughly $7,500. If the seller has owned the home for 200 days of the year, their prorated share is about $4,110, which they credit to you at closing.
Insurance Prorations
Homeowner's insurance is typically paid annually. If the seller has already paid the full year, you owe them a credit for the remaining months. If you are buying a new policy, you will pay the full premium and receive a credit from the seller. This ensures neither party pays for coverage they do not benefit from.
HOA Prorations
Monthly HOA fees are prorated by the day. If you close mid-month, you owe a partial month. Annual HOA fees are prorated like insurance. The title company will verify whether the seller has paid their HOA dues and adjust accordingly.
Some HOAs require a transfer fee or capital contribution at closing. These are separate from prorations and are typically listed as a line item in the seller's closing costs.
Utility Prorations
The seller provides final meter readings for electricity, gas, water, and other utilities. You are responsible for usage from closing forward. Some utilities charge connection or transfer fees that you will need to pay.
Utility prorations are usually handled outside of closing by contacting each utility company directly. The seller closes their accounts, and you open new ones effective the closing date. Some title companies will coordinate final readings if requested.
How to Read Prorations on Your Closing Disclosure
Section E and other sections of the Closing Disclosure show proration credits and charges. Your lender and title company explain each line. The net effect is a credit or charge that adjusts your cash-to-close.
Look for line items labeled "Tax Proration," "Insurance Proration," or "HOA Proration." The seller's credit to you will appear as a negative number (reducing what you owe), while charges appear as positive numbers. If you are unsure about any line, ask your lender or title company to walk through it before you sign.