Closing costs are little understood by most buyers and probably many Realtors. It’s not surprising; these costs are very specific to locale and their explanations are couched in “lawyerese.” Robert Wolper, a local attorney who specializes in real estate was asked to provide some of these explanations and has thrown some light on the topic, in plain English. Thanks for your help, Bob.
Lender Fees for Obtaining a Mortgage
These include origination fees, points which are a percentage of the loan − a way of buying down the interest rate from the outset, appraisal costs, credit report, lender attorney fee and application fees. These are lender specific and the responsibility of the buyer obtaining a mortgage but must be disclosed to you early in the application process. At closing the buyer will also prepay “short term” interest (from the day of closing through the end of the calendar month; the closer to the end of the month, the fewer number of days the interest accrues, the less the payment).
Inspection and Testing Costs
New York State is a Caveat Emptor State; a buyer is deemed responsible for inspecting a property and testing for hazards. Even well-informed sellers may be unaware of the significance of a condition issue in their property. Hazards include such things as radon gas, leaking in-ground oil tanks and lead paint. Testing well water in Westchester County is the responsibility of the seller.
Homeowner’s Insurance
Your lender will want to make certain that your property is covered by property and casualty insurance. Naturally you’ll want this coverage as well. Property and casualty insurance must be prepaid for one year at closing and is typically included in the escrow funds that your lender holds. Your monthly mortgage payment will include a portion of your insurance costs. If your property falls within a flood plain as drawn on a FEMA map, your lender will likely require you to obtain flood insurance as well. If buildings are well above flood levels the need for flood insurance may be contestable even if a portion of the property may flood.
Real Estate Property Taxes
Because local municipalities are responsible for collecting real estate taxes which include school, city/town/county and sometimes village tax, they have the right to foreclose on a property for tax default. In the instance of foreclosure, municipality tax liens are first in line for compensation before a mortgage lien. Consequently, lenders protect themselves by collecting monies for tax payment in advance which is held in an escrow account for payment of real estate taxes as they come due. The property taxes are then included in the amount you pay the lender each month. The amount held varies from lender to lender.
Title Insurance, Searches and Settlement Fees
Title insurance protects you (fee policy) and your lender (mortgage policy) against loss if a title dispute arises anytime after you own the property. Before issuing a title insurance policy, a title search is done and once the purchase is completed the title company records your deed with the County Clerk. Title insurance rates are determined by law. Typically your attorney selects the title company used. For your fee policy, there is a one-time premium payment at closing which provides coverage for as long as you own the property.
Mortgage Recording Tax
There is also a mortgage recording tax which in most Westchester County communities is a 1.05% tax on the amount of your mortgage.
Title Closer Gratuity
The title closer is the representative of the title company at the closing and the convention is to provide them with a gratuity of $75 to $100, an important part of their income. The closer collects all the appropriate documents and affidavits needed in order to clear or support all exceptions to the tile policy. The closer also gets final payoff amounts for existing liens, collects those funds at the table, sends them off to the lien holders, and collects any funds due the title company.
Attorney’s Fees
If the property is being mortgaged, the attorneys at the closing table will include the bank attorney as well as attorneys for the seller and the buyer. The buyer is responsible for paying for their personal attorney and as mentioned above, the bank attorney.
The Survey or Survey Inspection
Your lender will most likely require a survey of the property. This may take the form of a review of an existing survey in the seller’s possession. If the seller does not have a survey and none can be located in municipal offices, it may be necessary for you to hire a surveyor and have one prepared. The costs for this vary based largely upon the size of the property.
Fuel Oil Reimbursement
If the property you are purchasing has a fuel oil tank, the seller is entitled to be compensated for any remaining oil in the tank. The oil company will have done a reading just prior to closing and the seller will be issued a check at closing.
“Mansion” Tax
Properties selling for any amount over $999,999 have an additional New York State Tax of 1% of the sales price.
