17/08/2017
Q&A: What are the closing costs and fees associated with buying a property?
Aside from the property’s purchase price, what other fees and taxes do property buyers need to sort out?
Q: What are the closing costs and fees associated with buying a property?
A: After finding the house of your dreams, it is now time to submit a letter of intent to inform the seller that you are interested in his or her property. More importantly, this is also the time to ready your payment.
But besides the property’s purchase price, there are also fees and taxes that you as a buyer need to shoulder. These include transfer tax and notarial fees, among others. Although this article is just a general guide to help you get your finances ready (indeed the total cost of purchasing a home will differ depending on the circumstances of the sale), it is still useful at least to eliminate unexpected surprises later on. To be certain, it is always advisable to seek the help of professionals, such as licensed brokers, accountants, or even a lawyer.
1. Documentary stamps tax
This type of tax is levied on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale, or transfer of an obligation, right, or property. In the case of a sale of a transfer of a real property or a Deed of Absolute Sale, the tax rate is 1.5% or Php15 for every Php1,000 of the property’s selling price, zonal value, or fair market value, whichever is higher. For example, if a property’s selling price is Php3 million (and if this amount is higher than the property’s zonal value or fair market value), the documentary stamps tax will be Php45,000.
2. Transfer tax
This is a tax imposed on any mode of transferring the ownership of a real property, either through sale, donation, barter, or any other mode. This varies to a low of 0.5% to a high of 0.75% of the zonal value of selling price of the property, again whichever is higher, depending on the municipality where the property is located. To determine the exact amount, the buyer should consult with the City or Municipal Treasurer of the local government unit where the property is located.
3. Registration fee
This fee is paid for the registration of a deed of sale, conveyance, transfer, exchange, partition, or donation of a real property and is paid to the local Registry of Deeds or Land Registration Authority where the property is located.
To make computation simple, let’s use Php1.7 million as the property’s selling price, an amount that incurs a registration fee of Php8,796. However, if the property’s selling price exceeds Php1.7 million—for example, Php2 million—the buyer will add Php90 for every Php20,000 in excess of Php1.7 million. Hence, the Registration Fee for a property worth Php2 million will be Php10,146.
4. Notarial fee
As a legal instrument or document evidencing a sale, the Deed of Absolute Sale should be also notarized, which requires a fee of about 1% to 1.5% of the property’s selling price, but no lower than Php1,000.
5. Loan fees
Lastly, if the buyer applies for a housing loan, there are extra costs tied to it, such as appraisal fee, handling fee, mortgage redemption insurance, and fire insurance. This depends on the bank or lender, so make sure to shop around that offers the best rate.
Again this article presents a general guide on the closing costs and fees associated with buying and selling a property. The seller, for instance, will pay other taxes, such as capital gains tax, value added tax, or income tax, depending on the circumstance of the sale. In order to be sure, it is always best to consult with real estate professionals.
by MyProperty.phPublished: November 9, 2016Updated: November 10, 2016
