Congratulations! You’ve found your ideal condo in NYC and have saved enough for the downpayment. In many other cities, you would have one step inside the front door. However, in the Big Apple you’ve still got a long way to go because if you haven’t accounted for your closing costs, you might want to renew your rental lease. As a rule of thumb, it’s good to budget 2 to 3 percent of the purchase price or 3 to 4 percent if the apartment is over $1 million for closing costs.
Why are New York City closing costs so expensive?
One word — taxes. Between the mortgage recording tax, mansion tax (for buildings over $1 million) and New York City and State transfer taxes you will have to dig deep into your pockets and perhaps your parents’ pocket or kids’ college fund too before you can even think about asking a bank to lend you money for a mortgage.
What are all the closing costs in NYC?
Unlike litigation or other legal matters, real estate closing attorneys generally don’t charge by the hour, so you can budget in an attorney’s fee as part of your closing costs without fear that it will go up too much. Budget anywhere from $1500 to $4000 based on the size and complexity of the transaction. In cases when a buyer is purchasing a new condo from the sponsor they may also be asked to pay for the bank’s attorney’s fee ($1000-$2000). Sometimes this can be negotiated away depending on how eager the sponsor is to do the deal.
The term mansion tax is something of an oxymoron in NYC. It is applied to properties with a purchase price over $1 million but in New York City, there’ll be nothing mansion like about the property you’ll buy for $1 million. It’s a progressive tax and increases the higher the purchase price is. It starts at 1 percent of the purchase price and increases to a maximum of 3.9 percent for properties of $25,000,000 or greater. The new rate schedule was included as part of the 2020 budget passed by the New York State Senate and Assembly.
Title Insurance (condos not co-ops)
If you are purchasing a condo and getting a mortgage you will be required to get title insurance. Different providers will have different rates but expect to pay about 0.45 percent of the purchase price. It’s vitally important as it protects buyers and lenders against claims and liens on the title of your property such as unpaid property taxes prior to your ownership.
Mortgage Recording Tax (condos not co-ops)
This is a biggie! The mortgage recording tax in NYC is 1.8 percent on mortgage amounts (loan amounts) under $500,000 and 1.925 percent on amounts over $500,000. So, for a condo priced at $2 million (an average price in Manhattan), after a downpayment of $400,000 (20 percent), the mortgage recording tax at 1.925 percent would be $30,800. Ouch!
New York State & NYC Transfer Taxes (new development condos only)
The New York City Real Property Transfer Tax is 1 percent of the price of the property if the value is $500,000 or less or $1.425 percent if it is greater. That’s not all you have to pay in New York, however. The New York State transfer tax is an additional 0.40 percent on the purchase price. This state tax increases to 0.65 percent for residential transactions greater than $3,000,000.
Other closing fees
Bank Loan Origination Fee
An origination fee can be as much as $5000 for a million-dollar loan going through a mortgage broker but it is unlikely a bank will charge this much. It’s customary to see an origination fee of around $1000. This is sometimes referred to as a junk fee. It’s just a fee that the bank adds on because they have agreed to give you a loan. Often this can be negotiated away. Some banks even make it a point of claiming they will not charge an origination fee. Beware, though because other fees could crop up in its place elsewhere.
Origination points are fees paid for the evaluation, processing, and approval of mortgage loans. One point is typically equal to 1 percent of the mortgage amount and the more discount points paid, the lower the interest rate on the mortgage. The cost of the points is tax-deductible if it is used for the mortgage and not for closing costs. According to the IRS, if the fee is for items that appear on a settlement statement, such as inspection or notary fees, the cost is not tax-deductible.
Property Appraisal Fee
Expect to pay $500 to $1000 (depending on the size and type of the property) for an appraisal.
Title Search and Recording Fees
This costs around $1000 and is well worth the investment to make sure your new home has a clean title.
Mortgage Underwriting Fee
Expect to pay $400 to $900 depending on the lender and loan type. If you are also paying any kind of origination fee there should be room to negotiate this fee down.
The standard amount for this service is $20-$30
When your bank wire’s over money to an escrow account they will charge you around $100 for the service.
Pay around $10 to certify that you do not live in a flood zone.