Real Estate Closing Costs: New HUD regulation tries to reduce them

According to yesterday's NY Law Journal,  HUD is in the process of  enacting a new regulation designed to bring down closing costs on houses, condos, and co-ops.  I've heard a lot of people complain about closing costs-- especially when  little unexpected extra costs show up on the morning of the closing, like a 1/2 of a mortgage point for the mortgage broker, a 'gratuity' for the title closer, etc.

But in a way these regs are  just window dressing.  Aside from mortgage 'points', the single biggest item in property transfers, at least in New York City is fees or taxes.  The government's pound of flesh, so to speak. 

Here is the latest schedule for residences:

NYC Transfer Tax:    1% of price up to $500,000; or, 1.425% of price if $500,000 and over. Plus $25 administrative fee.

NYS Transfer Tax:     $4.00 per $1,000.00 of price, or 0.4% of purchase price

Mansion Tax:             1% of entire purchase price once the sale exceeds $1,000,000.

These are collectively known as the transfer taxes.  So if you buy a nice two-bedroom for $700k, you owe the tax man $12,775.  If you're lucky enough to afford a $1M apartment in Manhattan (which gets you not all that much space), you owe them $28,000 or so.

So this HUD reg, along with the task force the state was supposedly forming to address overly high real estate closing costs, is a bunch of baloney (or bologna as it may be).  The big number is the xfer taxes.  But no point in spending the money on a government task force to tell you that the same government's fees are adding 3-5% to all real estate transactions.  It also explains why the city and state were so anxious to keep the real estate party going a few years back. 

But wait, that's not all.  According to the City Department of Finance,

"There is a Statewide mortgage recording tax as well as the New York City mortgage recording tax applicable to mortgages recorded in the City of New York. The aggregate applicable rates are as follows:

• Where the principal amount of the mortgage is less than $500,000, the tax rate is $2.05 for each $100, or major fraction thereof, of the principal amount. However, if the mortgage provides that the property to be covered is a one- or two-family house, the tax is reduced by $0.30 for each $100 of the first $10,000 of the principal amount.
• Where the principal amount of the mortgage is $500,000 or more and the property to be covered is a one-, two-, or three-family house or individual residential condominium unit, the tax rate is $2.175 for each $100, or major fraction thereof, of the principal amount. Again, however, if the mortgage provides that the property to be covered is a one- or two-family house, the tax is reduced by $0.30 for each $100 of the first $10,000 of the principal amount.
• Where the principal amount of the mortgage is $500,000 or more and the property to be covered is not a one-, two, or three-family house or individual residential condominium unit, the tax rate is $2.80 for each $100, or major fraction thereof, of the principal amount.

In this example with a 90% mortgage you'd owe another $13,700 in mortgage taxes.