Closing costs are those expenses associated with the purchase of a property other than the contract down-payment. Closing costs fall into two major categories: Bank Related Expenses and Title Related Expenses.
Bank Related Expenses: These expenses are those incurred in obtaining the mortgage to complete your purchase. They include:
Points: A point (equal to 1% of the amount of the mortgage) is a fee paid to either the lender or mortgage broker for the opportunity to obtain a mortgage loan from that lender. Points are 100% tax deductible when the mortgage is used to purchase a primary residence.
Mortgage Bank’s Attorney: Unfortunately, the purchaser is customarily obligated to pay the lender attorney’s fee, in addition to their own attorney’s fee, as a condition of obtaining the mortgage. This fee ranges from $400.00 to $700.00 depending on the lender.
Tax Escrow: Most lenders will undertake to pay the real estate taxes on properties it grants mortgages against. In order to have sufficient monies to pay these taxes, a lender will require you to deposit 1/12th of the annual real estate tax bill in an escrow account with the lender, along with the monthly mortgage payment. In addition, you will be required to make an initial deposit, usually equal to 50% of the annual tax bill, in order to have sufficient funds set aside to make the first tax payment after closing of title.
Private Mortgage Insurance (PMI): If you put down less than 20% on your home purchase, many lenders will also charge you private mortgage insurance (PMI) premiums payable monthly. The coverage doesn’t protect you; it protects the lender if you default on the loan.
Homeowners Insurance: A lender will also require that you maintain homeowners insurance in an amount necessary to replace the dwelling house. In addition, most lenders require that the first year’s premium be paid in advance of the closing.
Misc. Fees: Lenders shall also assess various fees depending upon their internal procedures. Some of these fees include: tax service fees, document preparation fees, and application and credit fees. These fees vary depending on the particular lender.
Title Related Expenses:
These expenses are those required to complete the transfer of title and to record the necessary documents associated with the closing. They include:
Title Insurance: Required by all mortgage lenders, title insurance guarantees that you are obtaining good and marketable title from the seller. This one time expense, set by statute, varies according to the purchase price of the home and the amount of the mortgage.
Title Closer Gratuity: It is customary to give the title company’s representative a gratuity for handling the closing.
Departmental Searches: As part of the title search an abstract company will check the municipal records to ensure that the property is in compliance with the local ordinances affecting real property as well as the survey of the property. The fee for these reports varies depending on the municipality. In addition, if a new survey is required, you can anticipate an additional expense to have a new survey prepared by a licensed surveyor.
Mortgage Recording Tax (MRT): Anytime a mortgage is recorded in the State of New York, there is a one time fee assessed against you. In New York City, the fee is equal to 1.80% of the amount of the mortgage (under $500,000.), less $30.00. The fees in the outlying counties vary, depending upon the local regulations, with a minimum of .8% of the amount of the mortgage, less $30.00. This “tax” is not tax- deductible.
Recording fees: In addition to the MRT, you are obligated to pay a fee to the County Clerk to record the original mortgage and deed. This one-time expense which varies according to county.
Mansion Tax: If you purchase a home with a purchase price of $1,000,000.00 or more, New York State imposes a transfer tax equal to 1% of the purchase price on you.
Another closing cost not outlined above is the purchaser attorney’s fee. While attorney fees vary, a reasonable fee charged by a skilled real estate attorney is always a wise investment.
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