Closing Costs
Understanding Closing Costs
Closing fees are a necessary part of getting a mortgage and the amount of them can affect your borrowing and your ability to buy a house. We always bring up the closing costs right away when we begin to work with a client, especially with first-time buyers. It’s important to know that you need cash on hand for both the down payment and the fees at the closing. If you don’t have enough, you will need to rethink your price point or your buying schedule.
So what are all these costs?
For buying a home, closing costs for a mortgage consist of individual, bank, state, county and town charges, all paid by the borrower.
INDIVIDUAL
Appraisal of the property – amount is based on the value of the house
Attorney – cost depends on who represents you (could be anywhere from $1,500 to $15,000)
Title Insurance – protects your investment in case there is a hidden deed issue that arises post-closing and could nullify your ownership of the property. Exact amount will depend on purchase price and if you are getting a mortgage but is usually between .4 and .5 of the purchase price (dictated by a chart from NYS)
Daily Interest Charge – the interest on your loan from the day you close until the end of the month since you won’t make your first payment until the following month
Hazard Insurance – the bank needs to know that you are protecting their investment
BANK
Bank Underwriting Fee – these can vary by bank but generally range from $500 to $2,000
Title Insurance – protects the bank for the purchase price, rate same as for individual above
Bank Attorney – yes, you pay this too, average is $1,250 – $1,800
STATE
Mansion Tax – 1% if a property is $1,000,000 or more
COUNTY (amounts are for Suffolk)
Mortgage Recording Charge – is based on the length of the mortgage document, average range $500 – $100 but could be higher for lengthy covenants and restrictions
Mortgage Tax – .80 of the loan amount gets paid to the county
Deed Recording – $150 – $600 depending on type of deed
County Property Tax Reserves – you always pre-pay taxes so it could be 4-8 months of taxes at closing. If the seller has already paid these taxes, you would need to reimburse them
TOWN
CPF (Community Preservation Fund) – a percentage of each sale is collected by the county but goes to the town to provide funds for preserving open space and, as of 2023, providing affordable housing.
As of 4/1/23, the percentage paid is 2.5%, with exemptions based on the selling price.
East Hampton, Southampton and Shelter Island –$400,000 is exempt for properties less than $2,000,000. Above that price, no exemption.
Southold – $200,000 exempt
Riverhead – $150,000 exempt
These charges can seem like so much bureaucracy but they all serve to protect property owners in important ways, especially the ones related to deed recording and insurance.
We had one client who bought a house for $850,000, closed on it, everything was fine. Three months later, the county came back to her lawyer and said that the seller of the property hadn’t actually been entitled to sell it. He had acquired it from a foreclosure and the foreclosure bank was never paid off. Our client now had a property with a lien on it that had nothing to do with her! The county said they couldn’t record her deed because there wasn’t a clear title. This is where the title insurance kicked in. The buyer was protected and was able to keep the house and the title insurance company paid off the outstanding lien to the foreclosure bank. This was the first time this ever happened to one of our clients. Very surprising that the title insurance company didn’t catch it when they checked the deed history to make sure it was clean and unencumbered. And the attorney didn’t notice either. Ideally these glitches are discovered beforehand but fortunately title insurance protection was in place and our buyer did not need to pay off the outstanding debt herself.
Refinancing
For refinancing a home, the situation is a little different. Some of these costs will not be needed and the ones that are could possibly be rolled into the new loan. You wouldn’t pay CPF again, for example, or the mansion tax. And you’ve already paid the mortgage tax to the county so often you can get an assignment so you don’t need to pay it again or only pay it on the new part of the loan.
A good mortgage broker will walk you through all possible charges and leave you feeling comfortable that you have a good handle on both your budget and your timeline.