Closing costs when buying a home are a shock to many first-time home buyers. They have spent their time saving for a down payment to buy the home of their dreams in New York, without realizing this added expense is on top of the purchase price.
Closing costs are necessary fees that pay for the services needed to complete a home purchase. There are fees for both the buyers and sellers.
Closing costs include things like title policies, inspections, courier charges, bank fees, attorney fees, and in New York, the mansion tax.
Educated buyers can avoid the sticker shock by preparing for these costs ahead of time.
How Much a Buyer in New York Can Expect for Closing Costs
Closing costs for buyers in New York range from 1.5% to 6%, but average 2% to 4% of the total purchase price. These averages need to be raised for properties over a million dollars.
Generally, it is considered wise for buyers to have saved 2% to 3% of the purchase price for homes under a million dollars, and 3% to 4% for those over a million.
Sellers in New York have a closing cost range of 8% to 10%.
The Main Closing Costs When Buying a Home in New York
There are different fees that add up to the total closing cost. Some of these will be $100, others will be thousands.
Some of these costs will be standard for everyone, like a move-in and move-out fee, while many other costs will be based on a percentage of your total purchase price. There will also be fees that are one-time occurrences and others that will be recurring.
Some factors that will affect how much your closing costs will total include things like whether you’re paying with cash or a mortgage, whether you’re buying a condo, house, or co-op, and whether you’re buying new construction.
Related: 6 Steps to Buying a Home in New York
There are many fees you’ll need to consider, like the broker’s fees, mortgage application fees, and a title search. Some other common big ticket closing costs are itemized below.
The New York Mansion Tax
Residential real estate that is valued at or above a million dollars will include a closing cost of 1% to 3.9%.
There are eight different tax brackets with different percentages. If your property is a million dollars, the mansion tax is 1%.
If the purchase price is twenty-five million dollars or more, then the mansion tax is at a rate of 3.9%. The mansion tax was revised to these new tax brackets in 2019.
Condos Must Pay For Title Insurance
Co-ops do not have physical titles, so they don’t incur this particular closing cost.
For condos, the title insurance can be a high-ticket item in your closing costs. This fee covers the buyer against future claims against the title for undiscovered issues at the time of purchase.
When you are financing your home, you’ll need to pay for a title insurance policy for the lender which will decline as you make your payments. You’ll also need to purchase an owner’s policy.
The owner’s policy will be for the total purchase price of the property and will not decline over time.
If you are purchasing a condo with a mortgage, there will be bank fees. These include an appraisal, your bank’s attorney’s fees, and a mortgage tax.
The mortgage tax in New York is 1.8% for loans under $500,000, and 1.925% for loans over $500,000.
The Buyer’s Attorney
Closing can be a complicated process. Hiring an attorney to make sure all of your details are handled can be a wise choice that comes with some considerable fees.
It would be wise to budget $2,500 to $3,000 for a standard deal, but more complicated deals will typically cost more.
Ways to Save When Buying a Home in New York
Closing costs are inevitable. However, there are a few things you can attempt to lower the total you’ll need to pay in the end.
Purchase Something Almost New
If you have your sights set on new construction, but have seen the developer’s closing costs and want to avoid that fee, consider looking at properties that are almost new. You can find condos that have been only slightly lived in and save yourself a lot of new construction fees at closing.
Ask the Developer for a Closing Credit
If your heart is still set on new construction, ask for a closing credit. Even if they aren’t willing to negotiate price, because it would affect the price of other units, they may be willing to agree to a closing credit that will bring your costs down.
Research Mortgage Bankers
You should shop around for the best deal you can find. You need to choose a mortgage based on the best interest rate because this will typically offer you the most savings, but when two financial institutions offer you similar rates, you may find that one of the loan officers will compete for your business by covering some of the closing fees.
Understand the Closing Costs And Avoid The Sticker Shock
Buying a home in New York can be one of the most thrilling experiences in your life. It will also be full of paperwork. You will work with a team of people during this process, including your loan officer, the seller’s real estate agent, attorneys, and home inspectors.
Your real estate agent will be with you throughout the entire process, your key team member who guides you through the exciting times and all the paperwork. So while they may seem overwhelming, remember you won’t be alone through the process.
Keep your closing costs in mind when you’re planning out your budget for your home purchase. Ask questions when you need to so you can keep a running list of your costs. This way you will always be aware of what you’ll need to spend.
Being aware and practical about taking care of the closing costs is important, both because you’ll need that money to successfully close, and because avoiding the shock of these costs will mean they won’t detract from the thrill of becoming a New York homeowner.
Have Questions? Ask NYKWHomes
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