Understanding NYC Closing Costs for Homebuyers
Each real estate deal in NYC is unique, your agent's insights—coupled with advice from your attorney and lender—will ensure you're fully prepared for closing day.
When buying a home in New York City, it’s important to factor in closing costs, which generally range from 2% to 5% of the purchase price, depending on the type and value of the property. Larger properties tend to have a lower percentage of closing costs. These expenses go beyond your down payment and mortgage, covering additional fees like attorney charges, flip taxes (for co-ops), the mansion tax, and mortgage recording taxes. Because every transaction is unique, it’s essential to consult with your real estate agent, attorney, and lender to understand the full scope of your closing costs based on your specific property and financing. Below is a general breakdown of key closing costs you might encounter when buying in NYC.
1. Attorney Fees
In NYC, both buyers and sellers typically hire attorneys to represent them during the real estate transaction. For buyers, attorney fees generally range between $2,500 to $5,000, depending on the attorney and firm, and the complexity of the deal. Your attorney will review the contract, conduct due diligence, negotiate on your behalf, and ensure your legal interests are protected throughout the transaction.
2. Bank and Mortgage Fees
When financing a home in NYC, several bank and mortgage-related fees can arise, and they often vary depending on the lender or mortgage institution. Here are some common fees to expect:
Bank Attorney Fee: Typically around $1,500, this covers the cost of the bank’s attorney, who represents the lender during the closing process. The actual amount can vary depending on the complexity of the transaction and the bank’s policies.
Appraisal Fees: Lenders require a property appraisal to determine its fair market value. Appraisal fees generally range from $500 to $1,500 depending on factors like the property’s size and complexity. High-end properties may require more specialized appraisals, driving costs higher.
Mortgage Origination Fee: This fee typically covers the administrative costs of processing your loan and ranges between 0.5% and 1% of the loan amount. Some banks offer lower fees based on the loan type or borrower profile.
Other Possible Fees: Additional fees may include underwriting, credit report pulls, or paperwork processing. These can vary widely between institutions, so discussing these upfront with your mortgage broker is essential.
Since fees differ from lender to lender, it’s crucial to shop around and compare loan estimates. Your real estate agent and mortgage broker can help you understand these costs specific to your lender and property.
3. Mortgage Recording Tax (For Condos and Townhouses)
If you're purchasing a condo or townhouse and taking out a mortgage, the mortgage recording tax applies. The tax rate is 1.8% for loan amounts under $500,000 and 1.925% for loan amounts over $500,000. This tax is calculated based on the loan amount, not the purchase price. It’s important to note that this tax does not apply to co-ops, as co-op buyers are purchasing shares in a corporation rather than real property. The exact amount may vary slightly depending on the borough, so it’s essential to verify with your attorney or lender to ensure you're budgeting accurately
4. Mansion Tax
The mansion tax is a surcharge that applies to homes priced at $1 million or more in New York City. This tax starts at 1% of the purchase price for homes just over $1 million and increases incrementally, topping out at 3.9% for homes priced above $25 million. For most properties in the $1 million to $2 million range, you can expect the tax to be 1% of the purchase price.
5. Title Insurance (For Condos and Townhouses)
Title insurance is an essential part of purchasing a condo or townhouse in NYC. This insurance protects against potential claims or disputes over the property’s title, such as undisclosed liens or past ownership issues. The cost of title insurance typically ranges from 0.4% to 0.6% of the purchase price, though it may vary depending on the transaction’s complexity.
6. Transfer Taxes
In New York, both NYC and NY State levy transfer taxes on real estate transactions. These taxes typically apply to new development condos or certain other property types. The combined transfer tax rate is 1.825% for properties over $500,000. While sellers typically pay transfer taxes in resale transactions, buyers may be responsible for these costs when purchasing new development properties, as developers often pass the tax burden onto buyers. As always, it’s crucial to consult with your real estate agent or attorney to clarify who is responsible for these taxes in your transaction.
7. Flip Tax (For Co-ops)
Co-op buyers generally have fewer closing costs than condo or townhouse buyers, as they’re not subject to mortgage recording taxes or title insurance. However, many co-ops charge a flip tax, typically ranging from 1% to 3% of the sale price. While the seller traditionally pays the flip tax, this can vary by building, and in some cases, the buyer may need to cover it, or the cost might be split between both parties. The flip tax can be calculated as a flat fee per share or as a percentage of the sale price. It's critical to discuss this with your agent and attorney before making an offer to ensure clarity around how it will impact your closing costs.
8. Miscellaneous Fees
In addition to the standard closing costs, buyers in NYC may face additional fees, especially when purchasing condos or co-ops. These building-specific fees buyers might encounter from move-in costs to administrative and application fees. These fees vary depending on the property. Below is a sample list of fees from a condominium building in Murray Hill, Manhattan:
Administrative Fee: $450 (Non-refundable)
Application Processing Fee: $600 (Non-refundable)
Credit Check Fee: $150 per adult occupant (Non-refundable)
Move-In Fee: $1,000 (Non-refundable)
Move-In Deposit: $2,000 (Refundable)
Key Fob Fee: $30 (Non-refundable)
Working Capital Contribution: Two months' common charges (Non-refundable)
These sample fees illustrate the types of charges that can add up quickly. It's important to be aware of these costs ahead of time and factor them into your overall budget. Your real estate agent will guide you through these potential expenses and ensure you're fully prepared for any building-specific fees that may arise during the closing process.
9. Maintenance Fees and Assessments for Co-ops and Condos
While not part of one-time closing costs, monthly maintenance fees (for co-ops) and common charges (for condos) are ongoing financial obligations. Co-op fees typically cover expenses like building staff, utilities, and taxes, while condo fees go toward building maintenance and amenities. In addition to the monthly fees, buildings may impose special assessments—one-time fees used to fund major repairs or upgrades. These assessments can be costly and affect your overall ownership expenses, so it's essential to inquire about any upcoming assessments before purchasing.
Co-op boards often require buyers to demonstrate post-closing liquidity, meaning sufficient liquid assets to cover 12 months of maintenance fees. This is crucial for gaining board approval, and your agent and attorney can guide you through the process.
10. Recent Changes to Commission Structures
Following a recent settlement involving the National Association of Realtors (NAR) and the Real Estate Board of New York (REBNY), there have been changes to how real estate commissions may be handled. Traditionally, the seller covered the buyer’s agent commission, but with the new decoupled structure, buyers could now be responsible for paying their agent's commission in certain cases. This shift means it’s essential for buyers to have a clear conversation with their agent at the start of the process to fully understand how it might impact their overall budget and transaction costs.
11. The Role of Your Real Estate Agent
An experienced real estate agent plays a crucial role in guiding you through the complexities of NYC’s closing costs. They will help you understand what fees to expect, coordinate with your attorney and lender, and ensure that all necessary paperwork is handled correctly. By collaborating closely with your entire team, your agent will also help you identify which fees can be negotiated between the buyer and seller and assist in formulating a realistic budget for your transaction. Remember, each deal is unique, and your agent's insights—coupled with advice from your attorney and lender—will ensure you're fully prepared for closing day and that nothing is overlooked. Always consult with these professionals to get the most accurate and up-to-date information for your specific situation.
Understanding NYC’s unique closing costs is a crucial part of preparing for your home purchase. Whether you're buying a co-op, condo, or townhouse, having a knowledgeable real estate agent by your side will help you navigate these expenses and make informed decisions.