No, the Real Property Transfer Tax (RPTT) cannot be directly financed as part of a mortgage. This means that buyers and sellers must pay the tax in full at closing, separate from their loan. Since RPTT can be a significant expense, understanding payment options and strategies to offset the cost is essential for anyone involved in a New York City real estate transaction.
How Is the RPTT Paid?
- The seller is typically responsible for paying the RPTT at closing.
- In some cases, the buyer may negotiate to cover the tax, particularly in competitive markets or new development purchases.
- The tax must be paid in full at closing—installment payments or mortgage financing are not allowed.
Alternative Ways to Manage RPTT Costs
While the RPTT cannot be rolled into a mortgage, buyers and sellers have several strategies to manage this cost:
- Seller Concessions – Buyers can negotiate for the seller to cover part or all of the RPTT as a concession. This is more common in slower markets where sellers are more willing to offer incentives.
- Lender Credits – Some lenders offer closing cost assistance in exchange for a slightly higher interest rate. This can help offset the upfront expense of the RPTT.
- Down Payment Assistance Programs – Certain first-time homebuyer programs provide financial aid that can help cover closing costs, including the RPTT.
- Builder Incentives – In new developments, some builders offer to pay part of the closing costs, including transfer taxes, as a way to attract buyers.
Why Can’t the RPTT Be Financed?
Lenders require that all real estate transfer taxes, including the RPTT, be paid upfront because they do not contribute to the property’s collateral value. Since these taxes are transactional costs rather than part of the home’s value, they must be settled before ownership is officially transferred.
Conclusion
Although the RPTT cannot be included in a mortgage loan, buyers and sellers can explore alternative options to reduce or manage this expense. Negotiating seller concessions, using lender credits, or seeking financial assistance programs can help ease the financial burden at closing.