Understanding and Anticipating the Costs of Closing on Your Home

Buying a home can be the biggest investment of your life. It is a good idea to understand and anticipate the closing costs in advance of the closing so that you can plan accordingly. While this list includes the most common closing costs it is not exhaustive and all of the costs may not apply to your particular purchase.

Costs Associated with Obtaining a Mortgage:

Bank fees – These include application fees, appraisal fees, points and escrow fees. The specific amounts and exact fees charged vary from bank to bank and should be discussed with your mortgage broker. The bank will provide you with a good faith estimate that will summarize the anticipated costs of closing.

Tax and Insurance Escrow – If the bank will be responsible for paying your real estate taxes and home owners insurance you will be required to fund a tax and insurance escrow accounts at closing. As part of monthly mortgage payments, you will pay the bank an amount equal to 1/12th of your real estate taxes and home owners insurance. When those payments are due the bank will pay them directly. The amounts you will be required to pay at closing will depending on how soon those the real estate taxes and insurance payments are due. For example, if the real estate taxes are due shortly after you close, the bank will not receive enough monthly payments to have the money to pay them when due. At closing you will have to give the bank the difference between the money they will receive from your monthly payment and the amount the bank will have to pay for taxes and insurance on your behalf.

Bank attorney – although the bank attorney represents the bank and not the purchaser it is customary for the bank to require that the borrower pay the bank’s legal fees, usually between $800 and $1200.

Costs Associated with Obtaining Title Insurance

Once you have entered into a contract, property records need to be searched to verify that the seller really owns the property and is free to sell it. Title insurance is a one-time premium paid when you purchase property that protects the homeowner from title defects – legal issues which can prevent a property from being lawfully transferred or sold – for as long as you or your heirs own the property. Mortgage lenders will also require the buyer to obtain mortgagee title insurance for the mortgage amount to protect their first lien position should they need to foreclose on the property.

Insurance Premiums – This is the amount charged by the title company for issuing an insurance policy. If you have a lender, the lender will require a separate lender’s policy, the price of which is also borne by the purchaser.

Searches and Service Fees – These include additional searches and services performed in conjunction with issuing a title report or policy, such municipal searches, Patriot name searches, and bankruptcy searches.

Survey – a land survey provides pictorial documentation of the boundaries, easements, and property lines. It shows the location and existence of the property. It shows the relationship of the property to adjoining properties. It establishes discrepancies between actual occupation or use and the description of record. It indicates the location of physical improvements in relation to the property lines The cost of the survey will depend on whether or not there is an existing survey that can be updated or if a new survey is required.

Recording Fees – To record a document in the State of New York, the original fully-executed documents must be submitted to the County Clerk for recording, the fee for which varies by each county and document type. Examples of standard documents to be recorded by a buyer in association with a home purchase include the deed and mortgage agreement.

Mortgage Recording Tax – For purchases with a mortgage, a one-time mortgage recording tax is assessed against the home buyer, which will vary by county and mortgage amount. In New York State, the mortgage tax is 1.05% of the total mortgage amount, of which the buyer will pay 75% and the lending bank pays 25% in most cases.

Transfer Tax – New York State imposes a real estate transfer tax on conveyances of real property when the consideration exceeds $500. The tax is computed at a rate of $2.00 for each $500 and is customarily paid by the seller using form TP-584. Additional transfer taxes may be imposed by the city or municipality in which the property is located. In New York City, for example, a transfer tax of 1% of the purchase price is paid when the purchase price is $500,000.00 or less; 1.425% is paid when the purchase price is in excess of $500,000.00

Mansion Tax – New York State imposes an additional tax of 1% of the sale price to be for residential purchases with a sale price of $1,000,000 or more. This fee, commonly referred to as mansion tax, is customarily paid by the purchaser.

Closing Adjustments

The closing adjustments will be determined by the date of your closing. For example, the seller may have paid real estate taxes for the period covering July 1, 2014 through June 30, 2015. If you close on April 1, 2015 the seller has paid for a period beyond his ownership period. In this case the parties would “adjust” for taxes and the purchaser would pay the seller an amount equal to the taxes for the period from April 1, 2015 through June 30, 2015. Other items commonly adjusted for include:

  • Common charges (in a condominium)
  • Maintenance charges (in a cooperative)
  • Any assessments
  • Water charges
  • Sewer charges
  • Oil