Home Buyer Closing Costs in NY

Buying your home in New York can be overwhelming and costly, be it a city apartment or suburban family home. To avoid any late stage surprises it's important to understand what the buyer closing costs will be, before you make your offer to buy.

Corona Virus has contributed to interest rates remaining lower than ever before and as a result there has been a surge of people buying homes. If you can afford it and you have secure employment this is great time to buy. But it is essential to study the buyer closing costs so you understand the full picture before rushing into your purchase decision.

What are buyer closing costs?

Buyer closing costs are the funds you pay over and above the agreed purchase price with the seller. These include taxes, fees and services charged by the government, bank, management company, insurers and your attorney.

The fees you pay will vary depending on the type of transaction. Factors to consider include whether you are getting a mortgage, if the purchase price is below or above $1M, and if the home is new construction or pre-existing. The answers to these questions can literally be a cost variable of between 1% and 6% of the total purchase price.

These costs are often not included in the funds one can borrow from their bank and so must be available in your bank account at closing.

In other words, these are cash costs and are to be paid by you. The general rule is that you have to pay out of pocket for these costs. However there are ways of rolling these costs into your mortgage which you should speak to your attorney about as soon as you can so he or she can assist you with what is known as a seller's concession.

Read below for a detailed break down about each of the closing costs.

Mansion tax

The mansion tax is paid by the buyer at closing. It started as 1% of the purchase price for any residential real estate transaction of at least $1,000,000. In March 2019, the rate was increased for transactions $2,000,000 and up. The new rates gradually increase to a maximum of 3.9% for properties purchased for $25,000,000 or greater.

To be clear, mansion tax is $0 if you buy a property for $999,999 and only kicks in once the price hits $1,000,000 plus. This is a big jump for $1 and a frustration for most who have to pay it, since after all, at $1,000,000 they are not exactly buying a mansion.

Mortgage recording tax

This may be the most expensive of buyer costs in New York. In New York City, the mortgage recording tax is 2.05% of the mortgage amount if it’s less than $500,000 and 2.175% if it’s $500,000 and above. Conventional lenders usually contribute 0.25% so your net amount due is 1.8% or 1.925%, respectively. If you are purchasing in NYC, the city pays the first $30.

Take note that Mortgage Recording Tax does NOT apply to co-op unit purchases which can represent massive saving if you go down the co-op path.

Another method of saving on Mortgage Recording Tax is the CEMA. A CEMA is when you take over the seller’s existing mortgage via an assignment of the loan to your lender. Make sure to explore this possibility with your attorney as soon as you can so that preparations can be made to get the process underway.

Title insurance

Title insurance insures your ownership rights to the property. If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance too. This protects the lender's interest in your property until your loan is paid off or refinanced.

What exactly does title insurance cover? Say for example the seller renovated their bathroom but did not pay the contractor. The contractor then filed a mechanics lien on the property with New York State. The contractor therefore created a claim on the property. Typically this claim should be discovered during due diligence. But if it were missed and you purchased the property without title insurance, you would then be liable to pay the contractor once you purchased the property. However, a title insurance policy would cover this and other such types of claim after closing and the title insurer would have to pay it post closing.

A title insurance policy lasts as long as you own the property and costs only about 0.4% of the purchase price.

Again, similar to Mortgage Recording Tax, co-op purchases do not usually require title insurance which may represent another reason to go down the co-op route.

Attorney fees

Attorney fees will be one of the lowest buyer closing costs. Most attorneys in the city typically charge between $1,750 to $3,500 per transaction and try to create a fixed fee arrangement rather than an hourly charge. Usually if the deal is smooth, the attorney can charge less, whereas if the deal has complications the attorney usually charges a little more, within the above mentioned range.

There are those who charge over $5,000 for a purchase and those who charge under a thousand. But beware of the old adage, "You get what you pay for."

Purchase application fees and Condo/Co-op fees

These are fees associated with condo or co-op applications. Most applications will require a processing fee, credit check fee, financing fee and a move-in fee.

Another fee like this is the flip tax. It is an obligatory fee imposed by the condominium upon the purchase/sale of a condo unit. Often the flip tax is stipulated in the condominium book which should be reviewed by you or your attorney. Flip Tax will need to be paid by buyer or seller depending on what the condominium book says and if it was not dealt with adequately in the contract of sale. That is why it is important to negotiate the flip tax and memorialize it in the contract of sale from the very outset of your transaction.

In the case of new developments, Sellers (otherwise known as Sponsors) will expect you to pay transfer tax and even their legal fees. Transfer taxes are a huge expense and must be carefully considered as they amount to 1.825% of the purchase price.

Lender fees

When you get a mortgage, your bank will pass on fees for the lending application, appraisal, credit check and the bank’s attorney.

These usually amount to about $2,000 to $5,000. The important idea here is that if you are borrowing $450,000, you will have to reduce the amount of the loan by the amount of these costs to know the net loan amount you will actually have available to spend on the purchase of your home.

In this case, if the lender's fees amounted to $3,000, you would actually have only $447,000 to spend at the closing.

Conclusion

These are some terms and expenses that you'll need to become comfortable with through the purchase of your new property. If you are looking for an attorney to walk you through and advocate for you from contract to closing, please contact me in the form below