Before you buy a home, it’s essential to plan. While most buyers consider how much they need to save for a down payment, many are surprised by the closing costs they have to pay. To ensure you aren’t caught off guard when it’s time to close on your home, you need to understand what closing costs are and how much you should budget for.
What Are Closing Costs?
Closing costs sometimes catch people off guard because they don’t know what they are. According to Bankrate:
“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome . . . Closing costs vary depending on the purchase price of the home and how it’s being financed . . .”
Fees and Payments
In other words, your closing costs are a collection of fees and payments involved with your transaction. According to Freddie Mac, while they can vary by location and situation, closing costs typically include the following:
- Government recording costs
- Appraisal fees
- Attorney Fees
- Bank fees
- Building fees
- Credit report fees
- Homeowners Insurance
- Lender origination fees
- Title services and Insurance (condos and townhouses only)
- Tax service fees
- Survey fees
- Attorney fees
- Underwriting Fees
How Much Will You Need To Budget for Closing Costs?
Understanding closing costs is essential, but knowing what you’ll need to budget to cover them is also critical. According to the Freddie Mac article mentioned above, the costs to close are typically between 2% and 6% of the total purchase price of your home. These costs can vary depending on local property taxes, insurance, and other factors. With that in mind, here’s how you can get an idea of what you’ll need to cover your closing costs.
Let’s say you find a home you want to purchase for the median price of $366,900. Based on the 2-5% Freddie Mac estimate, your closing fees could be roughly $7,500 and $18,500.
If you’re in the market for a home above or below this price range. Then your closing costs will be higher or lower. As a rule of thumb, coop closing costs are one to two percent of the purchase price. With condos, closing costs are two to four percent of the purchase price. With the new development, buyer closing costs are 4% to 6% of the purchase price. Additional buyer closing costs specific to new construction properties include NYC & NYS Transfer Taxes of 1.4% to 2.075%. As well as sponsor attorney fees and any new development-specific working capital and/or super apartment contribution.
Prepare for Closing Costs Before Heading to the Closing Table
Freddie Mac provides excellent advice for homebuyers, saying:
“As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs.”
Work with a team of trusted real estate professionals to understand exactly how much you’ll need to budget for closing costs. An agent can help connect you with a lender, and your expert team can answer any questions.
Know Before You Owe Rule
If you are financing, the Consumer Financial Protection Bureau has guidance to ensure consumers’ “Know Before You Owe” rule. Your lender and attorney will provide you with a closing disclosure outlining your closing costs. Ensuring there are no surprises.
The Consumer Finance Protection Bureau’s (CFPB) new Truth and Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) regulations implemented procedures requiring earlier notification and more transparency of the closing costs to buyers/sellers. Your Home Loan Toolkit is a step-by-step guide created by the Consumer Finance Protection Bureau to help you make better choices along your path to owning a home; click on the link. The Consumer Financial Protection Bureau provides a Guide to the Loan Estimate and Closing Disclosure Forms, click on the link.
New Documents
Loan Estimate (LE), also known as the “Know Before You Owe Disclosure,” replaced the Good Faith Estimate and initial Truth-in-Lending Disclosures. The purpose of the LE is to provide a clearer understanding of the terms of your loan and the costs associated with such a loan. With complete knowledge of the financial component of purchasing. You should be able to shop for and make a knowledgeable decision about the mortgage product that best fits your needs.
Closing Disclosure (CD) replaced the HUD – 1 Settlement Statement and the final TIL. The purpose of the CD is to finalize information in the LE, including the mortgage terms and the projected payment amount, as well as to summarize the closing costs incurred by the purchaser and seller.
Notification Dates
Loan Estimate (LE) and Closing Disclosure (CD) must be delivered to a borrower/consumer by Third (3) Business days after receipt of a completed loan application; and Seven (7) Business Days before the closing of the loan.
The Closing Disclosure must be delivered to and received by the borrower at least three (3) Business Days before “Consummation” of the transaction (usually closing of the transaction). The three business day period can be referred to as the “Waiting Period,” and closing can not occur until the conclusion of the Waiting Period.
Events Triggering Re-Disclosure of CD and a new Waiting Period
- An increase in the Annual Percentage Rate (APR by more than 1/8 of a percentage point for a fixed rate loan or ¼ of a percentage point for an irregular transaction, such as a variable rate transaction;
- The addition of a prepayment penalty; and/or
- Changes in the loan product, such as from a fixed rate to an adjustable rate loan.
Although the Waiting Period will generally not commence again for changes other than these three events. However, the lender is still responsible for providing the borrower with a new CD. Even if there are any changes to the CD after it is given to the consumer.
Key Takeaway
In New York City, Planning for the fees and payments you’ll be responsible for at closing is essential. Let’s connect, so I can help you feel confident throughout the process.
Closing costs guides are designed to provide you with the general costs associated with selling or purchasing a cooperative, condominium, or house. Please note that these are estimates only and that potential sellers and purchasers MUST consult their real estate attorney for specifics. Please also note that we do not represent that the information herein represents the entirety of potential costs. These instructions outline the general costs and can only be used as a guide. Abrams Garfinkel Margolis Bergson, LLP has an excellent buyer/seller Closing Cost Guide for residential products; click on the link.
An additional article by Brick Underground discussing closing costs for buyers and sellers in NYC can be found in the link.
