Help me not get swindled?
December 7, 2020 4:06 PM Subscribe
I am a first time homebuyer trying to purchase a co-op in Brooklyn. My closing is set for Thursday and I just received the list of closing costs. They seem high, almost $8,000 for a $365,000 apartment. I am single and kind of alone on this undertaking. My lawyer was recommended to me by my real estate agent and is also pals with my mortgage lender. I feel like something is not quite right here. Can you advise me or share your related experiences? What should I be asking before I write the checks and sign the papers?
Are you able to break down those costs a bit more? How much is taxes? Land transfer fees? Title insurance? Bank fees? Lawyer's fees? Realtor's fees (buyer and vendor)?
Your lawyer should give you a bill that breaks this down. If they do not, that is shady. It should be itemized.
Without knowing more, its really hard to say. Where I live, land transfer taxes are super high and it is usual to pay a combined 3% of the purchase price for all this stuff. Do you know anybody in your circle that has purchased something similar?
The lawyer is probably going to cost you $1,000 or so.
posted by dazedandconfused at 4:19 PM on December 7, 2020 [1 favorite]
Your lawyer should give you a bill that breaks this down. If they do not, that is shady. It should be itemized.
Without knowing more, its really hard to say. Where I live, land transfer taxes are super high and it is usual to pay a combined 3% of the purchase price for all this stuff. Do you know anybody in your circle that has purchased something similar?
The lawyer is probably going to cost you $1,000 or so.
posted by dazedandconfused at 4:19 PM on December 7, 2020 [1 favorite]
Response by poster: Thank you both. The original estimated closing costs in the loan estimate were $4100, about half what they sent me tonight. This is something I can work with.... Bless you. Thanks.
posted by ponibrown at 4:28 PM on December 7, 2020 [1 favorite]
posted by ponibrown at 4:28 PM on December 7, 2020 [1 favorite]
My friend who just bought a house in Massachusetts says:
"The key here is to look at up fronts vs. fees. Closing costs is a general term which includes both up-front money paid that you eventually use such as homeowner's insurance, escrowed property taxes, and other such things, as well as fees. Fees generally fall into categories of financial, legal, and documentation. If a lot of that money is coming from deposits and up-fronts, that is to be expected and should be somewhat proportional to the cost of the property, the age of the property, and the taxation of the locale. For Brooklyn I would expect the building to be very old, expensive to insure, and extensively taxed. Also check whether you are getting any credit toward your closing cost in exchange for a lower rate or vice versa, and whether you are buying any points. For reference, my house in semi-rural MA was 395k and I paid 9k in closing costs with no points and no credit toward anything--just the best rate I could get. I would expect Brooklyn to be more expensive on the documentation and legal aspect by a substantial amount on a per-cost basis. Hope this helps!"
(If you have specific questions I'll ask him if he can help out more.)
posted by cheesegrater at 4:28 PM on December 7, 2020 [6 favorites]
"The key here is to look at up fronts vs. fees. Closing costs is a general term which includes both up-front money paid that you eventually use such as homeowner's insurance, escrowed property taxes, and other such things, as well as fees. Fees generally fall into categories of financial, legal, and documentation. If a lot of that money is coming from deposits and up-fronts, that is to be expected and should be somewhat proportional to the cost of the property, the age of the property, and the taxation of the locale. For Brooklyn I would expect the building to be very old, expensive to insure, and extensively taxed. Also check whether you are getting any credit toward your closing cost in exchange for a lower rate or vice versa, and whether you are buying any points. For reference, my house in semi-rural MA was 395k and I paid 9k in closing costs with no points and no credit toward anything--just the best rate I could get. I would expect Brooklyn to be more expensive on the documentation and legal aspect by a substantial amount on a per-cost basis. Hope this helps!"
(If you have specific questions I'll ask him if he can help out more.)
posted by cheesegrater at 4:28 PM on December 7, 2020 [6 favorites]
I don't even remember the closing costs for my own house, and I live a long way from Brooklyn, but I went here and plugged in a 20% down-payment and it spat out $8,500 for closing costs. So... sure? Annoyingly, one of the biggest line items was "Other closing costs".
I see other sites that suggest 2-3% of purchase price in closing costs, which is also in line with the number you gave.
Definitely ask for a breakdown, but this doesn't seem out of line.
posted by It's Never Lurgi at 4:28 PM on December 7, 2020 [2 favorites]
I see other sites that suggest 2-3% of purchase price in closing costs, which is also in line with the number you gave.
Definitely ask for a breakdown, but this doesn't seem out of line.
posted by It's Never Lurgi at 4:28 PM on December 7, 2020 [2 favorites]
this doesn't sound high to me. I just ran these #'s through a CC estimator and that gave me 8500
posted by JPD at 4:29 PM on December 7, 2020 [4 favorites]
posted by JPD at 4:29 PM on December 7, 2020 [4 favorites]
The original estimated closing costs in the loan estimate were $4100, about half what they sent me tonight. This is something I can work with.... Bless you
closing costs include lots of things other than just the loan close. Lawyers, Title, Escrowed Property Tax.
posted by JPD at 4:30 PM on December 7, 2020 [2 favorites]
closing costs include lots of things other than just the loan close. Lawyers, Title, Escrowed Property Tax.
posted by JPD at 4:30 PM on December 7, 2020 [2 favorites]
We were surprised by a larger-than-expected pre-payment of interest on one of ours, which was technically closing costs but was really just our first mortgage payment, so see if that's included?
posted by brainmouse at 4:31 PM on December 7, 2020 [3 favorites]
posted by brainmouse at 4:31 PM on December 7, 2020 [3 favorites]
Response by poster: OK... thank you very much everyone.
posted by ponibrown at 4:32 PM on December 7, 2020
posted by ponibrown at 4:32 PM on December 7, 2020
It also usually includes things like your prorated share of utilities and taxes, in addition to the title company fees. I worked for a real estate lawyer and was still surprised at how high my closing costs were, until I went through it step by step and said, hmm, yeah, that sounds correct. It’s a lot of money and they really don’t explain that upfront very well. But in my experience, that number isn’t overly far fetched. (Though the fact that it’s double your estimate is concerning!)
posted by firei at 4:54 PM on December 7, 2020 [1 favorite]
posted by firei at 4:54 PM on December 7, 2020 [1 favorite]
You should definitely check if you're paying points on your mortgage - the fee will usually show up as an "origination fee". This is basically money you give the mortgage company solely for the purpose of "originating" the mortgage. That's not necessarily a bad thing because you'll usually get a slightly lower interest rate in exchange for the higher fee. That said, points are not mandatory. You can almost always pay a slightly higher interest rate in exchange for a lower - or even negative - points payment. Given mortgage rates are really low right now, for many people, it's advantageous to pay less money upfront and just accept a slightly higher interest rates.
Otherwise, most closing costs are basically just paying costs you can't really negotiate. Even closing costs that are technically negotiable - like title costs - are generally more or less fixed between competitors. All that said, your realtor's job is to explain what each fee is, so feel free to judiciously question them and make them worth their fee [*]. I have noticed small errors in closing statements before, which definitely doesn't make me feel confident in the real estate market as a whole.
[*] No, buyer's agents are not free, despite propaganda to that effect by realtors. They're paid for by you by increasing the sales price.
posted by saeculorum at 5:00 PM on December 7, 2020 [2 favorites]
Otherwise, most closing costs are basically just paying costs you can't really negotiate. Even closing costs that are technically negotiable - like title costs - are generally more or less fixed between competitors. All that said, your realtor's job is to explain what each fee is, so feel free to judiciously question them and make them worth their fee [*]. I have noticed small errors in closing statements before, which definitely doesn't make me feel confident in the real estate market as a whole.
[*] No, buyer's agents are not free, despite propaganda to that effect by realtors. They're paid for by you by increasing the sales price.
posted by saeculorum at 5:00 PM on December 7, 2020 [2 favorites]
Note, if it's difficult for you to pay these costs upfront and your condo appraises for more than your offering price, you can roll closing costs into the mortgage so that you don't pay them upfront.
posted by saeculorum at 5:03 PM on December 7, 2020 [2 favorites]
posted by saeculorum at 5:03 PM on December 7, 2020 [2 favorites]
I recently purchased a $300k house and my closing costs were a bit higher than yours (not in NY though). But as others have said it should definitely be itemized.
posted by sillysally at 5:05 PM on December 7, 2020 [1 favorite]
posted by sillysally at 5:05 PM on December 7, 2020 [1 favorite]
I own a Brooklyn coop. I think the estimate was lowballed you entice you but the final cost is totally within reason. If there was a time to press this it was up front and not now. Welcome to the wonderful and often expensive world of home ownership. Really, congrats.
posted by Exceptional_Hubris at 4:39 AM on December 8, 2020 [1 favorite]
posted by Exceptional_Hubris at 4:39 AM on December 8, 2020 [1 favorite]
Best answer: IANYL but I used to do real estate closings. It is perfectly normal to be frustrated and confused by last minute changes. Especially when they seem to be very expensive. At closing, and maybe even the day before, you should get a HUD-1 Statement. This lists all the money going back and forth at the closing. It is perfectly reasonable to ask for an explanation for every line item on your HUD at closing. If you aren't having an in person closing due to covid, ask your lawyer to go over your items on the HUD prior to sending the funds for closing.
But cheesegrater has a very good explanation to give you a feel for some of the answers you may get. Your original cost estimate may have included lower amounts for accumulated interest, property taxes, etc.
Here is one example of an estimate that can be very low. There is a chance your mortgage company might be different, but most mortgages are paid in arrears. This means the mortgage payment you pay on Feb 1st is actually the payment for the principle and interest that accrued in January. And guess what - if you close in mid-December your first mortgage payment is actually going to be due until Feb 1st! However, at closing you are going to have to pay the interest that will accrue in December. So if you close on the 10th, they will collect roughly 21 days of interest on your mortgage. But if you closed on December 28th, they would only collect 4 days of interest. Some folks would say that you pay less if you close later in the month - but you have the apartment for less time so you are actually just paying less accumulated interest. If your original estimate assumed you were closing at the end of the month, the estimated accumulated interest to pay at closing would be much lower than the actual amount.
Co-ops can be another source of the change in the estimate. The managing agent for your co-op might charge fees at closing that your mortgage broker (or whoever prepared the estimate) was not aware of. If there is a representative for your co-op at the closing, you can also ask about those fees. But your lawyer should also have an idea
Purchasing your first home is very stressful. Congratulations! You are very close to the end. I know that the folks working in real estate all seem like they are in cahoots and leaving you out of the conversation. But they are all very well versed in a process that you are participating in for the first time. Your agent, and your attorney are there to help you through this process and they should also answer your questions.
posted by donovangirl at 11:15 AM on December 8, 2020 [3 favorites]
But cheesegrater has a very good explanation to give you a feel for some of the answers you may get. Your original cost estimate may have included lower amounts for accumulated interest, property taxes, etc.
Here is one example of an estimate that can be very low. There is a chance your mortgage company might be different, but most mortgages are paid in arrears. This means the mortgage payment you pay on Feb 1st is actually the payment for the principle and interest that accrued in January. And guess what - if you close in mid-December your first mortgage payment is actually going to be due until Feb 1st! However, at closing you are going to have to pay the interest that will accrue in December. So if you close on the 10th, they will collect roughly 21 days of interest on your mortgage. But if you closed on December 28th, they would only collect 4 days of interest. Some folks would say that you pay less if you close later in the month - but you have the apartment for less time so you are actually just paying less accumulated interest. If your original estimate assumed you were closing at the end of the month, the estimated accumulated interest to pay at closing would be much lower than the actual amount.
Co-ops can be another source of the change in the estimate. The managing agent for your co-op might charge fees at closing that your mortgage broker (or whoever prepared the estimate) was not aware of. If there is a representative for your co-op at the closing, you can also ask about those fees. But your lawyer should also have an idea
Purchasing your first home is very stressful. Congratulations! You are very close to the end. I know that the folks working in real estate all seem like they are in cahoots and leaving you out of the conversation. But they are all very well versed in a process that you are participating in for the first time. Your agent, and your attorney are there to help you through this process and they should also answer your questions.
posted by donovangirl at 11:15 AM on December 8, 2020 [3 favorites]
Our "transfer fees" due at closing also included a "flip tax" charged by the co-op corporation itself – in our case it was 2.5% of the price but that could vary.
posted by nicwolff at 3:42 PM on December 8, 2020
posted by nicwolff at 3:42 PM on December 8, 2020
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posted by mskyle at 4:17 PM on December 7, 2020 [4 favorites]