First-time Buyers in New York

The National Association of Realtors reported that first-time buyers made up a larger share of the residential market in New York (49 percent).

According to CNN Money U.S., 2015 may be the year first-time homebuyers make a comeback since rents are rising faster than incomes. While working with first-time buyers in New York we observed the following most common challenges that they face:

Closing Cost Unexpected Fees

“One of the most surprising aspects of buying or selling a New York City apartment—and thus, one of the more stressful—is the amount you’ll spend on closing costs, potentially tens of thousands of dollars that get tacked onto the purchase or sale of a home,” stated Brick Underground.

Surprisingly for some first-time buyers, the net available at closing is not the same as a loan amount. The lender usually deducts all their fees, including but not limited to lender’s counsel fees, appraisal fees, escrow fees. Moreover, the closing costs amounts vary with each property. For example, closing costs purchasing from a sponsor, where the original owner is a developer, in most of the cases purchaser will paying new York city and state transfer taxes, sponsor’s legal fee, working capital fund(which usually consists of two months of common charges or maintanence), persontage of the management unit etc.

Purchasers, who finance will end up paying a mortgage tax which will appear as a substantial amount on their title bill.

Misconseption of the Closing Date

Most of the Real Estate Contracts in New York will have a Closing Date “On or about”. However, this does not guarantee that closing will occur on that particular day as many first time buyer’s assume. It is simply a tentative closing date and in New York, it was customary established that each party has 30 days from the “on or about “closing date to adjourn the Closing. Such a closing date is really helpful if buyer’s are financing and not sure how much time exactly it will take to clear the loan for the closing.

On the contrary, when you buy from the sponsor or developer, closing date is going to be as time as of the essense. In such cases, any party not prepared to close on the given date will be in default, regardless of the reasons. Even though most of the sponsor’s contracts will not provide with exact date but rather have a provision that buyer will be given a thirty days written notice of the closing date at the later stage when building declaration is recorded. Most of the practicioners negotiating sponsor contracts will request for a right to adjourn the closing one time without penalty which will give purchaser a little flexeability to close and even put financing in order if financing is involved.

If the Buyer is ready to close is not nessesary the closing may take a place at buyer’s convenience.

Since there are multiple parties involved in a real estate transaction, delays can happen. When you schedule the closing you need to geather several parties at the same time in the same place, which can be challenging due to the conflict in schedules. Main parties for the coop purchase transaction: transfer agent or coop attorney, seller’s counsel, seller, buyer’s counsel, buyer, lender’s counsel(if financing is involved), pay off attorney(if seller has a loan on the premises). Main Parties for condo purchase transcasion: seller’s counsel, seller, buyer’s counsel, buyer, lender’s counsel(if financing is involved), title company.

Additional challenge arises when closing figures are not available until the closing date. Preferably, the seller and buyer are given the closing figures prior to a closing. However, it does not always happen in practice.

There are currently changes that are being made in the documents that are prepared for closing and the figures that go along with a real estate closing. As of October 2015 the HUD-1, as well as the Good Faith Estimate, will no longer be used for closings. They are being replaced by the closing disclosure and loan estimate.

The changes enacted by the 2010 Dodd-Frank Financial Law in 2015 are developed to help borrowers better understand the terms of their mortgages. Thus, the lender is required to provide borrowers with new “Know Before You Owe” forms so they can review the final lend terms. These new forms, the TILA-RESPA Integrated Disclosures (TRID), are applicable to mortgage rates and fee quote documents, with more time built into the process for reviewing them.

Home Inspection may reveal crucial facts

With regard to a home inspection, timing is a crucial aspect. It is important to mention that buyers should perform the home inspection before entering into a binding purchase agreement to avoid adverse consequences. Once a buyer signs the agreement, the chance to change the agreed price based upon the bad conditions of the real property will be highly diminished.

Especially buying a house in New York, a home inspection may reveal environmental issues(like soil contamination, high level of radon, bacteria in a vail, structural defects, toxic mold, etc.)

Ordering Lien Search prior to the board approval may be a waste of buyer’s money

A similar timing aspect is applicable to lien searches and other records. These records include Real and Personal Property transfers, interest, and ownership information. The Offices of the City Register maintain the New York City public records for the Bronx, Brooklyn, Manhattan, and Queens. Nevertheless, the best advice here is not to order a lien search prior to the board approval. Otherwise, it would be a waste of the buyer’s money if the approval were denied by the board.

Lender’s Preapproval may not 100% guaranty a loan

In order for the purchaser to get financing there three conditions to be met: 1) buyer has to qualify financially; 2) project, building has to be approved by the lender; 3) Apprasal has to be at a purchase price for the lender to provide 80% or more of the Purchase Price.

Another challenge for first-time buyers is the underestimation of lender’s preapproval. “Not to be confused with a prequalification, which is essentially a crude calculation of how much of a loan you might qualify for, a preapproval is a written estimate from the lender stating how much you will likely be able to borrow based on an initial review of your credit and financial information,” the NY Times stated. Borrowers may be required to explane any large deposits in their bank account within two months prior to the buyer’s application for a credit. Thus, it is important to prepare for this preapproval process in advance. Additionally, it would be beneficial for buyers to learn how much they can afford.

Preferable Rates of Homeowner’s Insurance may not be easy to obtain

Homeowner’s insurance which also requires credit qualification. Author Kristi Waterworth of usmortgagecalculator.org states: “Just because you can get a mortgage doesn’t automatically mean every insurance company is going to go out of their way to offer you homeowner’s coverage, though”. Our advice here is to apply to several insurance companies in order to create a backup plan.

Natalia Sishodia, Esq.

With assistance in Research by Natalia Lantonio

All rights reserved by Sishodia PLLC

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