WHAT are Transfer Taxes?
HOW Much are They?
WHO Pays?
When I first speak with clients seeking information regarding mortgage financing, they're typically focused on 3 things:
- What Down Payment they will need
- What their Interest Rate will be
- Can they get Approved for a Mortgage
The answers to those questions are definitely needed and vitally important. But they
are not questions quickly answered.
I must first obtain some information in order to be able to answer their questions credibly and reliably. This includes information regarding their finances, debt, credit, savings and more.
As the needed info is shared and our conversation unfolds, questions go back and forth between us. Much like a ping pong ball, the questions bounce back and forth quickly and fluidly providing each of us an opportunity to get to know one another and for fact-finding.
It's during this conversation that the mortgage process, its direction, and needs and expectations that go along with it are normally laid out. A time-frame for the process is provided.
It's also during this talk that the subject of monies required for costs/Closing is discussed. Many hopeful homebuyers are surprised to find out that costs ... beyond those surrounding down payment ... are typically involved when borrowing money. The existence of these costs and the need for their payment can come as quite a shock, especially to first-time home buyers.
A full explanation of these costs and why they are charged must then ensue. Those Closing Costs explained and covered are:
- Lender Application Fee .. OR .. Appraisal Fee
- Appraisal Fee (Paid @ Application) If not Application Fee
- Credit Report (Paid @ Application OR @ Closing)
- Tax Service Fee
- Flood Certification
- Home Inspection (Paid @ time of Inspection)
- Lender's Origination Fee (Paid @ Closing)
- Title Fees & Title Insurance (Paid @ Closing)
- First Year's Homeowners Insurance Premium (Paid @ Closing or immediately prior to)
- Possible Cost: Homeowner's Association Documents & Questionnaire (If Applicable on Condos, PUDs)
- Recording Fees (Paid @ Closing)
- Transfer Taxes (These vary by City, County, State ... and by terms of Contract) Often paid by Seller.
- Attorney Fee (Common in Illinois. Paid @ or after Closing)
I find that the cost/fee (included in the list above) that most often confuses, "trips up" or causes last-minute panic for my clients (and sometimes their real estate team) is that of Transfer Taxes. It's not unheard of that this fee is addressed at the 11th hour leading up to Closing.
So:
- What are Transfer Taxes?
- Who is charging them?
- And who pays them?
#1: What are Transfer Taxes?
Transfer Taxes are those taxes that are imposed at the time that real estate property experiences a transfer of title.
Transfer Taxes are based on the value of the property transferred.
The Recorder of Deeds/Registrar of Titles in each county collects the tax via the sale of revenue stamps that each county purchases from the IL Department of Revenue. That stamp may also provide evidence of the payment of a county real estate transfer tax.
Transfer taxes can be known by many names, such as "deed tax", "stamp tax", or "mortgage registry tax", depending on your locale. Transfer Taxes should not be confused with mortgage recording taxes or recording fees paid at the time of Closing.
In Illinois, the sales price or the fair market value of the property sold dictates the amount of Transfer Taxes paid. Again, the State of Illinois has a transfer tax that is typically paid by sellers and is set at a rate of $1.00 per thousand, or $100 per $100,000 of property value.
Other states may utilize another equation for calculation of Transfer Taxes. Please consult your real estate professional for further information regarding your local practices.
Note: A tax professional should be consulted for advice regarding the deductibility of any Transfer Tax paid.
#2: Who is charging Transfer Taxes?
For those in Illinois: Click HERE for info (as of 1-1-2019) regarding those municipalities and counties that have Transfer Taxes.
For elsewhere: Please refer to the info provided by the National Association of Realtors (NAR) or consult your local real estate professional to see if a Transfer Tax cost is involved in your real estate transaction.
#3: Who pays the Transfer Taxes?
Transfer Taxes can vary from municipality to municipality and county to county within the State of Illinois. Depending on your location, a Transfer Tax can be paid either by buyer or seller. Payment should be negotiated at the time of contract.
Again, for those outside of Illinois, local customs may dictate different payment methods. What is common practice in one county/state may not apply elsewhere.
No matter which party agrees to pay the Real Estate Transfer Taxes, the taxes are shown on the Closing HUD Settlement Form. Some Lenders require that proof of payment be supplied prior to Closing time. Inquire with your Lender for directions regarding this matter.
For information regarding Transfer Taxes, Closing Costs and all things surrounding mortgage financing, in Chicagoland - IL - WI, reach out to me via the info found on my mortgage website: www.genemundt.com.
Contact me today. I'll put my 40+ years of mortgage experience hard to work on your behalf.
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