Closing Costs for a Home Purchase
The best way of looking at your Closing Costs for a Home Purchase is to break it down three (3) different categories. The primary three (3) categories are the following:
- Bank fees;
- Title fees; and
It will speak for itself that should you not be financing, those fees that are attributable and payable to a bank related to a mortgage will not apply to those purchasing all cash.
1. Bank Fees
- Bank fees $350.00-$750.00
- Application/Processing Fee: $500.00-$1,000.00
- Appraisal Fee $300.00-$1500.00. Please note that there may be a reappraisal fee depending upon the amount of time from when the initial appraisal took placed when the actual closing takes place and the value of the Property. This is something that will need to be discussed with your banker. This applies to those who are financing.
- Credit Report Fee $50.00-$100.00 per applicant. This applies generally to both those who are financing and those who are not financing and will be charged by the Bank.
- Bank Attorney Fee $600.00-$1,000.00. This fee goes to the Bank’s Attorney. The Bank retains an Attorney to prepare the necessary documents in order to close. The Bank’s Attorney actually appears at the Closing. Kishner & Miller works directly with the Bank’s Attorney to ensure a smooth Closing.
- Origination Fee/Points. This is a fee that a Bank may charge you in order to reduce your particular interest rate. While this was popular many years ago, it has become less popular in recent years due to the currently low interest rates. However, one should never be surprised and ask their bank whether or not these particular fees apply. These fees could be anywhere from 1% to 3% of the mortgage amount. Hence, they could be very significant.
- Tax Escrows. This amount usually equals 2 to 6 months of the amount of real estate taxes that is attributable to the particular property for the year. The Bank usually escrows money for the payment of your real estate taxes. In order to ensure that the Bank actually has its sufficient funds to pay these particular fees, the escrow up to 2 to 6 months of your real estate taxes and place them in a segregated escrow account for your benefit. While this is monies that is placed for your benefit, is also an additional fee that is picked up at the time of the Closing and therefore, additional fees that you must have available at the time of the Closing. This fee applies when there is a bank. If you are Closing with an “all cash” transaction then this tax escrow will generally not apply.
- Short Term Interest. This is to ensure that the Bank gets paid the interest from the date of Closing until the end of the month in which the Closing occurs. Once again, for example, if you were to close on the 20th the day of a particular month the bank will want to be paid from the 20th of that month until the last calendar day of the month. Once again, this is an adjustment as opposed to a closing cost because either way you would have had to have paid it. However, the reason why this is being included in the Closing cost section and a Purchaser must be cognizant of this is because, once again, this will require more money that you will need to have on the date of the Closing.
2. Title Fees:
- Title Insurance. The good news about title insurance is that it is regulated under New York State Law. However, the bad news is that it does apply and therefore must be paid at the time of the Closing. There are various calculators that can be used that may calculate for you the precise amount of monies that are due when acquiring a Home. By way of an approximation only, for every $1 million that is being insured you pay $ 3,750.00. Again, this is only a rough approximation and this must be explored in more detail. The bottom line is that this is a significant fee that must be recognized. This is a onetime fee that is paid to the title company to guarantee that you have good and insurable title to the property.
- Mortgage Title Insurance. While title insurance essentially provides a guarantee that you as an owner have good and insurable title to the property free and clear of all liens, encumbrances and judgments, Mortgage Title Insurance essentially guarantees to the Bank that their mortgage has priority over any other mortgage and/or lien against the property. Once again, this amount is regulated. For approximation purposes only, and truly as an approximation, Mortgage Title Insurance is approximately $1,250.00 for every $1 million of a mortgage. Once again, due to the significant amount of the dollar value that is attributable to Mortgage Title Insurance this needs to be carefully analyzed. Similar to a tax escrow, you will not need to pay for Mortgage Title Insurance should there not be a mortgage on the property. In fact, any fee that is normally paid to the Bank as stated herein such as the bank fee, appraisal fee, bank Attorney fee, origination fee/points will also not apply.
- Search Fees $300.00-$800.00. This fee is required in order for the Title Company to prepare and issue a Title Policy. The Title Company needs to run various municipal searches of the various departments in New York City to ensure that there were no liens, judgments or other encumbrances against title to the property. In order to do this, the said searches cost money.
- Filing Fees $300.00-$800.00. These fees apply to the filing of a Deed and a Mortgage in the New York County Clerk’s Office. In order to be recognized as the official owner of the Property a Deed must be filed of record. In order for a Bank to properly have its Mortgage against the property this also must be recorded in the New York County Clerk’s Office. Once again, these tasks require that fees be paid to the Title Company.
- Title Closer Fee. The Title Closer who is at the Closing generally gets a fee of approximately $250.00-$400.00. The Title Closer is the person that appears at the Closing who then later actually delivers your Deed/Mortgage for the actual filing with the County Clerk’s Office. This is, in many ways, is a tip to the Title Closer to ensure that all of the appropriate documents make their way to the proper filing clerk.
- Mansion Tax. The Mansion Tax of 1% of the Purchase Price is applicable to the purchase of any property in New York State in which the purchase price is $1 million or over. As such, for example, if the purchase price is $2 million you will have to pay a Mansion Tax of $20,000.00. The mansion tax of 1% is applied to the total purchase price not the amount that is simply above $1 million. So, if the purchase price is $999,000.00 then you will not need to pay Mansion Tax. However, once the purchase price hits $1 million the Mansion Tax applies. Additionally, you need to be very careful on whether or not you are reaching the $1 million threshold when the purchase price is close to $1 million. If you were paying a cost that would otherwise be attributable to a Seller, for example, paying a Seller transfer tax, then this amount would be calculated into your purchase price. By way of example, if the purchase price is $990,000.00 and you have agreed with the Seller that you will be paying the New York State and New York City transfer tax, since the New York State and New York transfer taxes on $990,000.00 is over $10,000.00, you are over the $1 million threshold and the mansion tax shall apply.
- New York State Mortgage Recording Tax. The amount of this tax is also a fixed amount. When dealing in New York City the amount is approximately for a mortgage under $500,000.00 1.8%. For a Mortgage Recording Tax of $500,000.00 or over it is 1.925%. If the Mortgage is in another county these figures will vary. For instance in Nassau and Suffolk Counties the Mortgage tax will vary. Hence, in order to calculate this tax one must know what county they are purchasing it. For purposes of example only I will apply here in the mortgage Tax of New York City. If a Purchaser is taking out a mortgage of $1.5 million than the Mortgage Recording Tax that will be applicable and have to be paid by that Purchaser is $28,875.00. By way of another example, if a Purchaser is taking out a mortgage for $450,000.00 then the Mortgage Recording Tax is $8,100.00. The bottom line is that the Mortgage Recording Tax is indeed a fixed amount and must be recognized by a Home Purchaser.
- Real Estate Tax Adjustment. Real estate taxes will need to be paid from the date of Closing to the end of the tax period in which the Closing occurs. This will sometimes also be mandated by the Bank to ensure that the taxes are being paid.
- Miscellaneous Charges, Bank charges, etc. It is impossible to attempt to list every closing costs and adjustments that may occur at the actual Closing. As such, while I have dealt herein with the major charges that should be applicable at a Closing of a Home real estate transaction in New York State. One should allot additional monies just in case there are further adjustments of items that have not been articulated and are unique to your particular acquisition. For instance, a Purchaser that is acquiring a Home in the Peconic Bay region may be paying an additional tax. That particular tax could be up to 3% or more of the purchase price. I will deal more particularly with that in the section dealing with the acquisition of a Home.