Buying a home is a major investment, and many people are often unaware of the expenses that come with it. Closing costs are the fees charged to a buyer during the final stages of purchasing a property. These costs are often overlooked, but they can add up quickly and significantly increase the total cost of buying a home.
Knowing what these fees and taxes earlier on gives you some allowance to save up before the time comes that you need to pay for them. So, buckle up as we take a look at the closing costs and other fees that entails when you buy real estate properties in the Philippines.
What are Closing Costs?
Closing costs are fees paid by the buyer or the seller during the final stages of purchasing a property. These fees can include but are not limited to, appraisal fees, title search fees, transfer taxes, notary fees, and attorney fees. Closing costs also include any prepaid expenses like property taxes or insurance.
It’s essential to understand that these costs are separate from the down payment, which is the initial payment made by the buyer before obtaining a mortgage loan. Closing costs are paid at the time of closing, which is the final step in the home-buying process.
Closing costs are essential to the home-buying process because they protect both the buyer and the seller. These fees ensure that the property is legally transferred from the seller to the buyer, and all necessary paperwork is completed.
Closing costs also cover the expenses incurred by the lender in processing the loan. They also help to cover any legal fees should there be any disputes regarding the property. Understanding the importance of closing costs is crucial when budgeting for the total cost of buying a home.
Understanding the Different Types of Closing Costs in the Philippines
In the Philippines, closing costs can vary depending on several factors, including the location of the property and the type of loan. Here are some of the most common types of closing costs wjen you buy property in the Philippines:
Documentary stamp tax
The documentary stamp tax is imposed on the seller’s part as a fee for the documentation of the sale– whether it be a contract or any other type of document that signifies the sale of the property. The rate of documentary stamp tax amounts to 1.5% of the fair market value, property’s selling price, or the zonal value of the property being sold, whichever is higher.
This is a one-time fee that can be paid via the Bureau of Internal Revenue (BIR).
Local Transfer tax
Buying and selling property means there’s a transfer of title and ownership. The buyer pays for the transfer of the ownership of the real property. Depending on the location of the property, the local transfer tax may amount from 0.5% to 0.75% of the selling price, fair market value, or the zonal value of the property being sold, whichever is higher.
This is also a one-time fee that you can accomplish by paying at the City Treasurer’s Office.
Title registration fee or simply registration fee are fees charged to register the property under the buyer’s name. Paid to the local Registry of Deeds where the property is located, it amounts to approximately 1% of the property’s gross selling price. This also means that it is now legal to transfer ownership of the property.
The Deed of Absolute Sale is considered as a legal instrument confirming a sale and therefore should be notarized. A notarial fee usually costs about 1 to 1.5% of the property’s selling price, but should not be lower than PHP 1,000.
Capital Gains Tax
This is the tax that the seller of real estate that is regarded as a capital asset, such as a residential property, must pay when selling those properties. Approximately 6% of the property’s gross selling price or fair market value, whichever is larger, is paid as CGT.
Real Estate Agents’ Fee
Usually amounting to 3 to 5% of the property value, this serves as a payment for the service and assistance rendered by your real estate agent. Note that the real estate agent’s fee is separate from the commission.
Moving in Fee
Once the property is ready for turnover, the buyer shoulders a moving in fee that covers necessary utilities, subdivision or condo association dues.
Loan Fee or Bank Fee
One of the most common financing options when buying a house in the Philippines is bank financing. Instead of paying spot cash, the buyer opts to pay monthly amortizations. Applying for such housing loan also entails some charges imposed by the bank.
Tips for Saving on Closing Costs in the Philippines
Here are some tips for saving on closing costs in the Philippines:
Shop Around for Lenders
Different lenders have different closing costs. It’s important to shop around and compare different lenders to find the best deal.
Negotiate with the Seller
It’s worth asking the seller to contribute to the closing costs. This can help reduce the buyer’s financial burden.
Knowing what to expect can help buyers prepare financially for closing costs. By understanding the different types of closing costs, buyers can budget accordingly.
Don’t Overlook Closing Costs in the Philippines
Closing costs are an essential part of the home-buying process, and they should not be overlooked. These fees can add up quickly and significantly increase the total cost of buying a home. Understanding the different types of closing costs and how to save on them can help buyers prepare financially and make informed decisions when purchasing a property in the Philippines.
If you’re looking to buy a house in the Philippines, make sure to budget for closing costs. Shop around for lenders, negotiate with the seller, and be prepared for what to expect. Don’t overlook these hidden fees that can significantly affect your overall budget