|
Closing Costs for the Buyer
Whenever Buyers consider purchasing a home they must consider what the purchase will cost them. Aside form the down payment, which is the difference between the amount to be borrowed and the selling price of the house, including the good faith deposit the Purchasers had paid at the time of contract, and which Purchasers understand they must pay, there are other fees involved.
Most of the Purchasers are paying cash for the property, the only fees are those to search and insure the title, pay an attendance fee to the Title Closer, pay the costs of recording the deed and pay the bill from their attorney. Generally, however, Purchasers will need to obtain mortgage financing in order to complete the transaction. The cost of this financing comes under the heading of “Closing Costs” which include all the money needed to close the purchase.
Shortly after the Buyers apply for a mortgage they will be sent a “Good Faith Estimate of Closing Costs.” This is never exact, as many of the fees are only approximated and cannot be known until the closing date is set. But this estimate does give an idea to the Purchasers of how much money they will need on closing day.
Every mortgage in the State of New York is subject to the New York State Mortgage Tax of 3/4 of 1% (less $25.00 if the purchase is of a one or two family home in which the Purchaser intends to live and the mortgage amount is greater than $50,000.00). If the transaction involves a property in the City of New York, there is an additional 1% tax due. As an example, if a mortgage is being obtained for $100,000.00, the New York State Tax would be $725.00 ($750.00 minus $25.00) and, if the property is located in New York City, another $1,000.00 for the New York City Tax (total State and City tax on a property located within the City of New York would be $1,725.00).
Before the closing occurs, whether the Purchaser is paying cash or obtaining a mortgage, the Purchaser’s attorney will order a Title Search to make sure there are no liens, judgments, encroachments or easements on the property or the individual owners of the property and that the people who have agreed to sell the property are truly the people with the right to do so. The records are searched by the Title Company and an Abstract of Title, giving a brief history of the property and its owners, is prepared and submitted to the Purchaser’s attorney, the Bank’s attorney and the Seller’s attorney for their review. The Seller’s attorney must clear up any “clouds on the title” so that the title itself will be marketable. The Bank’s attorney will review the report to see that title is good and that three are no outstanding permits on the subject property. The Bank’s attorney will also check to be sure there are no judgements against the Purchasers, since any such judgements will have to be cleared before the bank will lend the money. The Purchaser’s attorney will review the title to make sure the Purchasers are not in danger of having to defend the title somewhere down the road. Once all the attorneys’ have reviewed the title and given their opinions that the title is marketable, the transaction can be complete.
TITLE FEES
Now you will need to know about the title costs. These numbers are averages. Some companies charge more for one item and less for another, so the average usually works out.
The initial search by the Title Company is for judgments, liens (including taxes and mortgages), easements and encroachments against the property and for judgments against the parties. This will cost about $250.00.
Additionally there are special searches which will add to your title bill, including Street Searches which cost $25.00, Certificate of Occupancy Searches which run $75.00, Bankruptcy Searches which are billed by the name and cost about $15.00 to $25.00 per party searched, Sewer Searches in Suffolk County and even in some parts of Nassau County, which cost $30.00, Housing and Building, Emergency Repair, Fire and Highway Searches in the city of New York, which run from $30.00 to $50.00 each.
Every purchaser should insist on a new survey, which will cost about $400.00 and is the best protection for the Buyer, however a survey is often supplied by the Seller and the Purchase can order a Survey Inspection instead of a new Survey. The survey inspection will cost $75.00. If the inspection shows any discrepancy with the old survey, the Purchaser should order a new survey if he want to be safe.
The Title Insurance Policy itself is actually two policies, one to protect the Purchasers and one to protect the Bank. The cost of these policies is determined by the purchase price and mortgage amount. For instance, the Title Insurance premiums on a property being purchased for $200,000.00 and having a mortgage of $100,000.00 will costs $1,117.00 for the Fee Policy (that’s the policy that protects the Purchasers) and $181.00 for the policy required by the Bank. (Please note, if you already own a property and are refinancing same, you may not wish to purchase another fee policy but the Bank will still require a Lender’s policy. The amount for the Lender’s policy will be $604.00, not $181.00. The cheaper Lender policy at the time of purchase is a discounted rate for a simultaneous policy. You should also note that a new policy on a refinance within ten years of the initial purchase will also be discounted, but not to the extent of the discount at purchase. The cheapest Lender policy rate without a simultaneous mortgage is $318.00 if the property was purchased less than ten years ago.)
BANK FEES
Each Lender has its own fee schedule, so please remember these numbers are an average.
The interest rate on a loan may be more or less depending on something called “points.” A point is 1% of the mortgage, and for every point paid there is a reduction in the interest percentage rate. For instance, a “no point” loan may be at 7% while a payment of two points could reduce the interest rate to 6-3/4%. In effect, the payment of points “buys down” the mortgage interest rate. Points are usually paid at closing. Since the points are actually “up front” interest, they are a deductible expense on your taxes when paid at the time the property is purchased. (When refinancing a loan, any points are not deductible as expenses in the year paid but are added to the adjusted basis of the property.)
Lenders charge various fees to the Purchaser which, in total, not counting the points, can be as little as a few hundred dollars or as much as a few thousand. It is impossible to give figures as each bank has its own fee schedule. Bank attorney fees also vary, beginning as low as $500.00 and going as high as $1,200.00. The Purchaser should carefully read the good faith estimate at the time of the mortgage application to make sure the Lender is not charging the highest fees.
When a Purchaser is getting an FHA mortgage, the is a Mortgage Insurance Premium (MIP) which must be paid by the Borrower, and if the Purchaser is putting down less than 20% on a Conventional Loan he may have to pay for Private Mortgage Insurance (PMI). These fees add to the cost of the loan at the closing and every month as the monthly mortgage payment is made an vary as they are based on the amount of the Loan. (In the case of the FHA loan, there is a refund due to the borrower if the loan is paid in accordance with the terms of the agreement. In the case of a Conventional mortgage where PMI is being paid, the PMI should terminate once the Borrower has paid enough principal to make his equity in the home account for 20% of the value.)
Additional expenses at closing include escrows collected by the Bank to cover future tax and insurance bills. Furthermore, there is another charge for interest which usually confuses the purchasers, so let me explain.
When a mortgage payment is made, the payment is dived into a portion that pays principle and a portion that pays interest. The interest is a payment in arrears; in other words, May’s payment includes April’s interest. If a property closes on the 15th of the month, the first mortgage payment is due forty-five days later, so if the closing takes place on May 15th, the first payment will be July 1st. That July payment will include June’s interest. But the interest of the remainder of May, the period between the 15th and 31st, will have been collected at the closing. This will be called “interim interest” on a closing statement. The later in the month a Purchaser closes, the smaller the amount of interim interest, which explains why so many real estate closings are scheduled near eh end of the month rather than the beginning.
Included in the Bank charges to the Borrower are those for the loan origination, appraisal, credit report, commitment, tax service and flood certification. Some of these fees are paid by the Borrower prior to the closing, but all payments made to the Bank, or to a Mortgage Broker, for the Loan should be documented so that the Borrower’s accountant will have everything needed for filing taxes.
OTHER PAYMENTS
At the closing the Buyers will have certain other payments to make. These will be in the form of credits to the Seller for taxes and fuel. Taxes due on a property are paid at specific periods. Tax adjustments on properties located in the City of New York are easiest to figure since they are paid quarterly. Nassau County is the most difficult because the taxes for schools are paid partially in arrears, a situation that creates confusion for al parties concerned. In Suffolk County the tax year begins in December, not January, which can also cause some confusion, but not nearly the sort found in Nassau.
In any event, to give an example of a tax adjustment between Seller and Purchaser, let’s take a property located in Queens (notice I took the easy way out). Closing is scheduled to take place on the 1st of March. Taxes are $1,200.00 per year, or $300.00 per quarter. The first quarter was paid by the Seller on January 1st. The Seller was in title in January and February. The Purchaser will be in title in March. If the taxes are $300.00 per quarter, they are $100.00 per month. Therefore, the Purchaser owes the seller $100.00, which will be reflected as a credit to the Seller.
Fuel must be adjusted as well. If the property is heated by gas or electric, there is no adjustment. The Seller has a final reading, pays his bill, the Buyer puts the utilities in his name and the matter is settled. If, however, the house is heated with oil, the Seller has the tank read prior to the closing and the Purchaser pays him for any oil in the tank. This is reflected as a credit to the Seller.
Once all the credits and debits are tallied, the Purchase pays what he owes to the Seller, the Seller hands the Purchaser a deed and the keys, and the closing has reached a successful conclusion. The Seller takes the money and the Buyer takes the house. God’s in his Heaven, all’s right with the World.
|
| |
Copyright © 2001 — 2007 Long Island Horse Properties, Inc. |
| |
