When purchasing a home, many buyers focus on the down payment and monthly mortgage payment—but there are other closing costs that often come as a surprise.
Two of the most common are transfer taxes and recordation taxes. While they sound similar, they serve different purposes and can make up a significant portion of your closing costs.
Let’s break them down.
What Are Transfer Taxes?
Transfer taxes are fees charged by the state, county, or municipality whenever ownership of a property is transferred from one person to another.
These taxes are typically calculated as a percentage of the home’s purchase price and are paid at closing.
Depending on where you’re buying, transfer taxes may be paid by the buyer, the seller, or shared between both parties according to local custom or the terms of the purchase contract.
What Are Recordation Taxes?
Recordation taxes are separate from transfer taxes.
These are fees charged by the local government to officially record the new deed and mortgage in the public land records.
Recording these documents establishes the new ownership of the property and creates the public record of the mortgage lien.
What’s the Difference?
While they’re often grouped together on your Closing Disclosure, they serve different purposes:
Transfer Taxes
- Tax on transferring ownership of the property
- Collected by the state and/or local government
- Based on the home’s purchase price
Recordation Taxes
- Fee for recording legal documents
- Paid to the local jurisdiction
- Makes the transfer of ownership and mortgage part of the official public record
How Do These Taxes Work in Maryland?
In Maryland, both transfer taxes and recordation taxes are common closing costs.
The exact amount depends on several factors, including:
- The county or city where the property is located
- The purchase price
- Whether you’re a first-time homebuyer
- Available local tax credits or exemptions
Some Maryland jurisdictions offer reduced taxes or credits for eligible first-time homebuyers, which can help lower closing costs.
Are These Costs Included in Your Loan?
Typically, transfer and recordation taxes are considered closing costs and are paid at settlement.
Depending on your loan program and negotiations with the seller, some of these costs may be covered through seller concessions or other credits.
Your lender and title company will review your Closing Disclosure with you before closing so you’ll know exactly what to expect.
Common Questions
“Do I pay these every year?”
No! Transfer and recordation taxes are generally one-time closing costs associated with purchasing a home.
“Can these taxes be negotiated?”
In some cases, yes. Depending on your purchase contract and local customs, buyers and sellers may negotiate who pays certain transfer taxes or request seller concessions to help offset closing costs.
The Bottom Line
Transfer and recordation taxes are a normal part of the homebuying process and help facilitate the legal transfer and recording of property ownership.
While they can seem confusing at first, understanding these costs ahead of time can help you better prepare for closing and avoid surprises on settlement day.
If you’re buying a home and have questions about closing costs or what to expect at settlement, the JBK Mortgage Team is here to guide you every step of the way!