Local home buying taxes and closing costs- Holy Cow! (Pittsburgh: sales, real estate market)

[ferrarisnowday]

So I'm finally applying for mortgages after living here for about 6 years. I know that it's typical to be taken aback by the infamous closing costs that everyone warns you about. But good grief, I'm blown away by what I saw today.

First off, regardless of the mortgage terms (or even if you pay cash), there's a 4% Realty Transfer Tax?! How is this justified? I can see the justification behind having a local property tax or income tax; but a realty transfer tax just seems like a huge deterrent to moving to the region. Am I misunderstanding something? It's unbelievable that someone would have to pay $2,000 just for buying a relatively cheap $50,000 house, on top of regular property taxes.

Next, I'm just wondering what typical closing costs in this area are. For the purposes of the mortgage application I was saying I would put $5K down and would be looking in the $55K and below range. Somehow even the cheapest estimate for closing costs ended up being over $5,500 (above tax included, but down payment not included). Is it typical for closing costs to amount to 10% of the purchase PLUS a down payment?

I figured I'd ask on the Pittsburgh forum rather than a generic real estate forum since our region's real estate market seems to be pretty unique.

[BrianTH]

Note the realty transfer tax rate varies by location (the state starts with 1%, and then the muni and school district can add more):

Tax Rates

And yes, it is an inefficient tax which punishes newcomers, but that is also why it is politically expedient.

Here is a little article on closing costs in PA:

Survey shows Pennsylvania has some of the highest closing costs in the nation

As it explains, a lot of the explanation for high closing costs in PA (in addition to the transfer tax) is add-ons to the title insurance fee.

[ferrarisnowday]

From the article Brian linked:

Closing costs in the state were the eighth-highest overall, averaging $4,236 on a $200,000 loan

So if you bought that $200K home in city limits, the 4% realty transfer tax alone would put it at twice the state average. Probably triple or more when you account for the rest of the closing costs.

I would expect the URA to at least offer a break on this tax at the local level in their "targeted growth zones." I guess that's not the case though. I'll have to really run the numbers to make sure it still makes sense for me to buy a house. I was figuring on being in Pittsburgh for at least another 3 - 5 years, possibly much much longer. I had been hoping to snag a cheaper home during that time and pay it by the time I would be moving (if that time ever came).

I'll also have to start more strongly considering the inner ring suburbs like Wilkinsburg, Braddock, or Millvale as well.

[Kippy]

I believe that it is common practice for the buyer and seller to split the transfer tax. If I am correct, you would be looking at paying 2% of the sales price, while the seller would cover the other 2%.

[h_curtis]

The transfer taxes are split between buyer and seller. Your side will have the 2%. Yes, the taxes when transferring a home in the city limits are crazy high. Probably better to move to the burbs and pay 1% in most cases, unless you want to move to Penn Hills. If you were paying cash, you can shift the 2% and the real estate commission to your side of the costs and lower the transfer. I don't know if people will understand what I am talking about, but if you are paying cash you can PM me and I will explain how to save money. Sadly most people don't know what they are doing AND 99% of realtors don't have a clue either. It always amazed me people don't know how to structure cash deals.

[BrianTH]

This is indeed part of why it doesn't necessarily make sense to buy if you aren't looking to stay in the same place for an extended period of time (with 3 years often being too short for it to make financial sense).

[greg42]

Yeah, split usually. And kind of like wage tax, most places outside the city are 2% less.

Closing costs can vary some depending upon what sort of loan you're doing, what type of bank or broker you're using, etc. You can finance most of them, but this doesn't really help you much on a new purchase. The math that makes that work is the equivalent of having more or less downpayment, so unless you're somehow buying a house well below it's appraised value you're going to need some cash. Some of the closing costs are fixed fees I think rather than percentages which will make them a higher percentage of a lower priced house. I'm trying to remember how much my closing costs were. I think $3-4k, on a $112k house, which includes the transfer tax I was paying.

The high annual property taxes people are griping about affect the closing costs too because you are paying for a pro-rated portion of a year of those in your closing costs. This is another part why they are among the highest.

[GeneW]

Of course some people have found ways around the transfer tax.

[Bong477]

It's 4% in the city and 2% in most of the county (with a couple exceptions that are higher). Its generally split even between the seller and buyer so you pay half.

6-7% is a rough estimate for closing costs including your prepaid property taxes HOWEVER some of your costs are fixed regardless of home price and some are (more or less) proportional to home price. This means if you are buying an inexpensive home, your costs as a percentage of the home price will be higher. At only 55k, you may very well pay 10% or so.

Yeah it sucks. Not much choice in the matter though.

I made the same complaint last year when we were shopping... Buyer closing costs in City of Pittsburgh

[Copanut]

Bottom line, don't buy in the City.