If you want to buy a house in NYC, you’ll soon realize it may cost a lot more than you initially expected. Learn more about closing costs and how much money you need to set aside for it.
With the large demand for housing and high cost of living in NYC, the city has a higher proportion of renters compared to the rest of the United States. In NYC, there are only around 32.5% home owners compared to the 63.8% with the U.S. as a whole.
However, despite being known for the expensive real estate and multi million dollar properties, the city has its fair share of more affordable homes that are valued at less than $300,000. This is great for those looking for a starter home or even those looking to invest in property.
While purchasing a home may seem simple enough, buyers will soon realize closing costs can impact your buying power and affect your purchasing decisions.
What are closing costs?
Closing costs are fees from services and expenses required during your home purchase that is paid at the end of the transaction. The closing, or end of transaction, is when the title of the property is transferred from the seller to the buyer.
This means closing costs are paid after escrow. Escrow is a secure holding area where important items are kept safe until the deal is closed and the property officially changes hands.
The average closing costs are usually 2%-5% of the purchase price of the home. So if you purchased a home in NYC for $150,000, you can expect to pay between $3,000 and $7,500 in closing costs.
Some of the fees included in closing costs are attorney fees, mansion tax, title insurance, mortgage recording tax, state transfer tax, NYC transfer tax, and other smaller costs such as mortgage fees, application fees, appraisals, and building fees.
Keep in mind the NYC mansion tax is for sales starting at $1 million that is usually paid by the buyer and the tax increases based on ranges of purchase prices. It is important to note that these costs can vary depending on the type of property you purchase, state, lender, and the type of loan you choose.
Who pays for what?
So who pays for closing costs? Both buyers and sellers have to pay closing costs. In NYC, sellers can expect to pay more in closing costs because they are responsible for paying the broker fee. However, this doesn’t mean closing costs are affordable for buyers.
Since closing costs can be pricey, some may not be able to afford it out of pocket. In this case, are closing costs paid from loans? It is possible to include most of your closing costs and fees in loan, but it is the most cost-effective to pay them out of pocket as a one time expense. This is so you can avoid accruing interest for these costs on top of your mortgage.
How to calculate closing costs
Since closing costs are a large part of purchasing a home in NYC, you may be wondering how to budget for closing costs. The best way to prepare for closing costs would be to put aside extra money. Generally, it is recommended to set aside around 2-4% of the sales price of the condo, townhouse, or co-op that you purchased.
However, if the property you purchased or are planning to purchase is one million dollars or more, you should save even more, at around 3-4% of the purchase price. Since condos usually have more closing costs associated with them compared to co-ops, it is also recommended to save around 3-4%.
Additionally, if the condo you purchased is brand new, you may want to increase the savings to 5% of what you paid for it. This is because brand new apartments tend to have higher closing costs associated with them.
Now that you’ve prepared yourself for closing costs when purchasing a home in NYC, you can better budget your money when it comes time to choosing your perfect home.
Localize is a great resource for your apartment search. Not only will our insights help you avoid unwanted surprises after moving in, but we can help you find homes that perfectly fit your purchasing budget. Happy apartment hunting!