Buying a house is a big decision and understanding all of the different parts may be difficult at times. To save you some time, we’ve put together a list of the major closing costs you will incur when buying a home in New York. It’s important to take this into account when shopping for homes because having a good estimate of your closing costs will give you a good idea of which houses you can afford.
What are Closing Costs
Closing costs exist in every state but are bigger in some than others. As with everything, closing tends to be expensive in New York with closing costs averaging around 2-4 percent of the purchase price of the home for condos, coops and town houses. Closing costs are paid at the closing table when you buy the home (hence the name) along with the down payment. They cover things such as taxes and charges made by the lender.
The Big Three
As a buyer there will be three charges that take up the bulk of your closing costs, these are:
Policy Premiums: Also referred to as title insurance, this cost goes to insure interest in the property in case of any title or ownership claims. There are two types of policy premiums; lender’s, which is required; and owner’s, which is optional. In the case of any ownership complications, the lender’s policy premium insures the lender’s stake in the property (aka the unpaid principal) whereas the owner’s policy premium protects the owner’s equity in the home (such as any principal that has been paid and any installments that have been made). Owner’s policy will usually cost you more but is worth investing in to further secure your asset.
Mortgage Recording Tax: This varies by county and city. In NYC mortgage recording tax is 1.8% of mortgage amount when you borrow less than $500,000 and 1.925% when you borrow more than $500,000. For example, if you buy a condo in NYC for $2,000,000 with a $200,000 down payment, the mortgage recording tax would be $34,650 (1.925% of $1,800,000). Co-ops are exempt from this tax because of how they are set up legally meaning coops tend to have much lower closing costs.
Mansion Tax: Mansion tax is only charged in New York City for houses that have a purchase price above $1,000,000. The tax start at 1% of the purchase price of the house and gradually increases to 3.9% for houses above $25,000,000. The mansion tax ranges are shown below
1% for houses between $1,000,000 to $1,999,999
1.25% for houses between $2,000,000 to $2,999,999
1.5% for houses between $3,000,000 to $4,999,999
2.25% for houses between $5,000,000 to $9,999,999
3.25% for houses between $10,000,000 to $14,999,999
3.5% for houses between $15,000,000 to $19,999,999
3.75% for houses between $20,000,000 to $24,999,999
3.9% for houses between $25,000,000 or greater
Other Costs
These 3 main costs will account for the around three quarters of your closing costs. The remainder will be other costs such as endorsements, recording fees, any escrow charges, and other small fees. Most of these fees are under $100.