The Road to Closing & Closing Costs

Our original closing date was August 15, 2012. We did not close until December 7, 2012. A variety of issues contributed to this delay.

The first delay was on our part. The original contractor that we wished to use did not meet all of the bank’s requirements and was also hesitant of the 203(k) process, with all of its rules and regulations. Therefore, after submitting all of the paperwork and forms for this contractor, we wound up having to repeat the process with another contractor.

The next delays were due to the homeowners. The two-family home had been owned by the same family for decades, and the title was in the names of an older gentleman and his mother. Unfortunately, both were not in good health. The mother had been sick for a while, apparently suffering from dementia, and was in a nursing home. The son had recently been diagnosed with an terminal illness but had deteriorated quickly; soon after we signed a contract, he was also placed in a medical facility. 

This house was a two-family home, and we soon learned that a third, unrelated party was living in one of the units. We also soon learned that this man had no intention of vacating the property. After all, why should he? He was living for free, had no lease, and the owner of the home was indisposed at another location.

To make a long story short, after applying a lot of pressure, threatening to back out due to breach of contract (which stated there were no tenants), we were assured that the man was vacating. However, he refused to leave until he secured a lease elsewhere in the city. On top of this, forget the “broom clean” clause in the contract, the owners of the home left a considerable amount of junk and debris behind.

In the end, it worked out. The “tenant” vacated and we closed on the home. Thanks to our lawyer (thankfully we chose a great lawyer for closing) the homeowners had signed an agreement to pay us if certain conditions weren’t met. For example, daily charges if someone was still living there after closing, money held in escrow to ensure the place was cleaned out, etc. As they hadn’t cleaned out the place, we were able to get a bit more money from them. Additionally, we were demolition the place – after we picked out some semi-interesting “treasures” from the junk left behind, we planned to have the rest removed with demolition.

In a way, I’m not sure what was more difficult – the closing process, or paying for the closing….

Should I state the obvious? New York City is expensive. For a reason that sometimes only we understand, we pay more for just about everything (except property taxes!) so it is no surprise that closing costs are a significant expense to factor in when buying or selling a home.

One of the key reasons that closing costs are higher is the higher price of real estate. To give you an idea, our closing costs were 3.1% of the sale price of the home (excluding the cost of renovations). The NYS Mortgage Tax/Transfer Tax was 68% of this alone. In addition to this, there was, of course, the downpayment to the bank. Despite being an FHA loan, which typically requires a very low downpayment, we actually paid around 20% down because of the size of our loan including the renovation costs. The downpayment wasn’t too painful at closing since we had already been required to put down 10% when we went into contract, which is customary in NYC. 

The other additional cost was that of our lawyer. I’ve heard prices quoted from friends outside of the city that are a fraction of what we paid, and I’ve also heard of the bank actually providing a lawyer at closing.  This was not the case for us, but we were very happy with our lawyer and would definitely recommend him. It was more expensive than we originally anticipated, but that original expectation was based on a closing date in August. Since we took four months longer and there were some road bumps along the way (illegal tenant, anyone?), the price was understandable.

While the cost of closing was high, we were prepared for it, and I give credit to our bank in that regard. Wells Fargo’s “Good Faith Estimate” was well aligned with the costs incurred at closing, and everything was well explained. In any case, it is always important to do your due diligence and read everything twice (or ten times). For example, we were refunded a small chunk of change after closing from insurance that had been pre-paid at closing; since we obtained our own insurance independently and showed proof of this, this pre-payment was swiftly returned to us.