Buyer's Closing Costs
When buying a home in New York City, you will have to pay closing costs. Given that New York City has some of the highest property values in the country and closing costs can be significant, it is important to have an understanding of how much you should allocate.
Both New York City and New York State both charge mortgage recording taxes. This is a tax you must pay when your mortgage is filed with the County Clerk. The New York City tax is:
- 1.8% of the loan if it is less than $500,000.00;
- 1.925% if the loan is greater than $500,000.00; and
- the rate on a commercial mortgage is 2.55%.
For properties in NYC, the State tax is:
- 2.05% for mortgages less than $500,000.00 for 1 to 2 family homes;
- 2.175% for 1 to 3 family residence or residential condo; and
- 2.80% for all other mortgages above $500.000.00 for all other properties.
In New York City, any property over $1,000,000.00 is subject to a mansion tax.
For 2020, the mansion tax is:
Purchase Price Mansion Tax Rate
$1,000,000 – $1,999,999 1.00% $2,000,000 – $2,999,999 1.25% $3,000,000 – $4,999,999 1.50% $5,000,000 – $9,999,999 2.25% $10,000,000 – $14,999,999 3.25% $15,000,000 – $19,999,999 3.50% $20,000,000 – $24,999,999 3.75% $25,000,000 and above 3.90%
Title insurance protects you from anyone who makes a claim against the ownership rights you purchase with respect to your property. If you get a mortgage, the lender will require you to get a title insurance policy naming them as an insured. You can also get a policy of insurance for yourself which is referred to as an owner’s policy. In New York City, premiums are based on the price of the property. Many title companies have premium calculators on their websites so you can enter in the purchase price of your home and determine the amount of your premium.
Title Company Closing Charges
In addition to the title insurance premium, the title company will also charge you for certain services provided:
The title company will conduct searches and certifications conducted and obtained from the municipal records to ensure that the property is in compliance with local ordinances affecting the real property.
The title company will charge you a fee to record the original deed and mortgage.
The title company may take an escrow for the real estate taxes that are owed for the quarter following the closing.
Condo costs are generally similar to single-family homes. There may be some other fees charged by the building so you must check with the Board as part of your due diligence.
The costs for coops are somewhat different from condos and single-family homes because you are not buying real estate but rather shares of stock in the cooperative housing corporation. These are some fees you can expect:
A special search will be conducted to see if the seller owes any money and if there is a lien on his or her shares to satisfy that amount.
Buildings charge their own fees such as an application fee, a move-in fee, or a fee to have the board meet to interview you. These fees are unique to each building so you should ask for a list of fees when you are reviewing the coop documents as part of your due diligence.
Some coops charge a “flip tax” when an apartment is sold. It is not actually a tax because it is collected by the coop itself. A flip tax is usually a percentage of the purchase price (generally 1-3%), but it could be based on something else such as a flat fee per share sold. Although a flip tax is customarily paid by the seller, sometimes it is collected from the purchasers. Even if you do not have to pay it as a purchaser, you will have to pay it when you sell so you should be aware of this expense.
You do not purchase title insurance when you buy a coop.
You do not have to pay a mortgage tax because you are buying personal property instead of real property so there is no mortgage to record.
You will have to pay a mansion tax if the purchase price is 1 million dollars or more.
Bank Closing Costs
If you are purchasing a house, condo, or coop with a mortgage, you will apply for a specific amount from your bank but you will not be able to apply the full amount to the purchase price because the bank will take its closing costs out of the proceeds. Examples of the costs include the bank’s attorney fee, any points charged, an application fee, escrows for taxes and insurance, and a private mortgage insurance premium if you are putting less than 20% down of the purchase price of your home. Consult the Good Faith Estimate provided by your lender to see what your mortgage costs will be.
With many new construction projects, if you purchase from the builder, you may be required to pay the builders’ closing costs, such as its transfer taxes, so it is important to be aware of this BEFORE you sign the contract of sale.
Although each transaction is unique, a general rule of thumb is to budget between 2% and 4% of the purchase price but you should be aware that your costs may be higher. Ask your attorney what the expected costs of your transaction will be so you will avoid any major surprises when it is time to close.
The preceding is for factual information only and is not intended to be legal advice. You should never attempt to address any of the issues raised here without the assistance of an attorney.