When you secure an SBA 504 loan to purchase commercial real estate, you receive numerous benefits for growing your small business. Even though there are tremendous benefits through this program, there are still some fees you need to pay, including the mortgage recording tax, which can cost you thousands of dollars.
In this overview, you’ll learn about the benefits of the mortgage recording tax waiver and how you can get this through Pursuit.
What is the mortgage recording tax?
The mortgage recording tax is a fee for the registration and recording of the mortgaging and transfer of ownership of your property. Depending on your property’s location, this fee may include city, county, and state fees. This is determined based on the mortgage you secured to purchase the property.
In New York State – and especially in New York City’s five boroughs – the mortgage recording tax is a significant expense when purchasing commercial real estate. Depending on your property’s location, it could cost almost 3% of the mortgage amount. This can quickly add up to thousands – or tens of thousands – of dollars in additional fees. You also have the sole responsibility to pay this fee – unless you negotiate with the seller to pay a portion.
However, if you use the SBA 504 loan program through Pursuit, you can save thousands of dollars in fees anywhere in New York State because of an exclusive mortgage recording tax exemption.
What is the SBA 504 loan program?
The SBA 504 loan program is a popular program to purchase owner-occupied commercial property for your business due to its numerous advantages. Some benefits include:
- A low down payment – usually 10% (instead of the typical 30% or more)
- An affordable, fixed interest rate
- A loan repayment term up to 25 years (instead of the typical term of 10 years)
Together, these can make owning a commercial property more affordable for you.
In addition to the down payment, financing comes from a first mortgage held by a partnering bank, usually 50% of the total amount, and a second mortgage through an SBA-approved lender called a certified development company (CDC), equal to 40% of the total amount.
How does the mortgage recording tax affect your SBA 504 loan?
For a typical SBA 504 deal, the mortgage recording tax applies to both the bank and the SBA 504 portions. This fee can be rolled into your closing costs and financed throughout the project or paid out-of-pocket.
Pursuit is exempt from the mortgage recording tax on the second mortgage – and this exemption can be passed on to you. This means the mortgage recording tax will be waived on up to 40% of your mortgage for New York State. This results in significant savings through lower closing costs, and Pursuit is the only CDC in New York State that can offer this special exemption.
How much can you save with the mortgage recording tax waiver?
Let’s say you’re purchasing a commercial property in New York City for your business and the property has a total purchase price of $2,000,000.
With a typical SBA 504 loan structure, this looks like:
- $200,000 = Your 10% equity contribution (down payment)
- $1,000,000 = Your partnering bank’s 50% first mortgage
- $800,000 = Your CDC’s 40% SBA 504 financing
With the 2.8% mortgage recording tax your fees would be:
- The first mortgage fee (from the bank): 2.8% x $1,000,000 = $28,000
- The second mortgage fee (from the CDC): 2.8% x $800,000 = $22,400
- Total fee: $28,000 + $22,400 = $50,400
Altogether, the mortgage recording tax fees would cost you $50,400. However, if you work with Pursuit, the SBA 504 portion of the mortgage recording tax is waived altogether, saving you $22,400.
The savings on the mortgage recording tax is a huge benefit for small business owners, and all you need to do to gain these benefits is sign an affidavit at the closing.
Let Pursuit help you save on your SBA 504 commercial property purchase
Pursuit helps small business owners in New York, New Jersey, Connecticut, Pennsylvania, Illinois, Nevada, and Washington to get the financing needed to grow their business. We offer more than 15 loan options and a business line of credit to meet business needs, including the SBA 504 loan – and, for businesses in New York State, this special mortgage recording tax exemption.
Contact us today to learn more.
