Column: How will you be financing your purchase ?

Philip A Raices

I have received a number of calls over the last month from my subscribers about the process of financing the purchase of their home, homeowner association condo or a co-op, leading to a successful and happy ending. Financing a home is a fairly cut and dry process. Your lender is going to request certain documents to be able to approve your mortgage. You will also have to contemplate what type of mortgage that you want, an A.R.M. (adjustable rate mortgage or variation of, or a fixed rate. This will totally depend on your specific situation, finances and most importantly, how long you will be residing in your home, homeowner association, condo or co-op. This is something you should talk to your mortgage person, as well as your C.P.A. and/or your C.F.P. (certified financial planner.
The following are those items that they will require if you are a W-2 wage or salary earner:
1. Your most recent tax returns
2. Any assets, coins, stamps or any valuable assets, stocks, bonds, etc.
3. 2-4 of your most recent pay stubs
4. A list of all your debts, eg.
a. Other mortgages and/or lines of credit
b. Credit card debts
c. Any type of installment loans
d. Car or equipment Lease obligations
e. Personal loans
f. Any other documents that the lender may request

If you are a 1099, self-employed, you will have to provide the following documents:
1. Two years of your personal and company tax returns (also generally must have been self-employed for at least two years to be eligible to be approved for a mortgage, with a few exceptions).
2. All of the above that a W-2 has to provide
3. All receivables (services rendered and monies owed from those services)
4.) Payables for all purchases short and long term
5. Any other documents that the lender may request

The lender will, right up and through the closing, verify that you are still employed at your particular job or business, as well as possibly check other information and primary sources, relating to your mortgage approval.

They also may ask and require that you pay down some or all of the credit cards, or other types of installment loans, in order to lower your debt/income ratio and come in line with those regulatory guidelines, for them to commit to your mortgage.
You will also have to decide on the type and length of your mortgage, how much you are borrowing and how much of a down payment (called out of pocket) you can realistically and comfortably afford and any additional amount to be brought to your closing, as well as anticipating your total closing costs.

Many put down as little as 3 percent, but in our surrounding towns, 20 percent total out of pocket and a first purchase money mortgage of 80 percent is usually standard for a home purchase; similar with a homeowner association and condo purchase.

However, with a co-op purchase it is usually standard to put down a total minimum of 10 percent out of pocket (with very strong financials and also the co-op board might scrutinize your financials with a “fine tooth comb” because you don’t have enough, as they call “skin in the game” and want to be certain that your financial position is very strong and stable.

If they feel and have concerns about your financial strength as a buyer and have any doubts of your capability in paying, not only your mortgage obligation but your monthly maintenance charges, they have the right to turn down your board application, without telling you why, especially in Nassau County (but the majority of the time, it’s about financials).

However, in Suffolk County, if turned down, the law states that they have 45 days to provide the buyer, the specific reasons why. I believe there are more people passing the boards review today, than before the law was passed, possibly due to less discrimination that might have been occurring in the past.

However, since there is generally no board approval on an homeowner association and condo, the process is much more streamline and simplified. However, if for some reason they block your sale on an homeowner association or condo, they may be obligated to purchase that specific unit (your attorney must check the offering plan).

You also have the right to hire a house inspector in all three types of purchases, especially a home, since you are totally responsible for the entire property; whereby in a co-op purchase, you as the unit owner is responsible for everything inside your unit and the co-op corporation is responsible for everything inside the wall out to the exterior of the building; thereby your liability is much less, than a residential property.

Sometimes an inspection is ordered for a co-op, to double check that certain mechanicals, heating, plumbing and electrical are in excellent working order, resulting in much less of a chance of an assessment or increase in monthly maintenance charges.

However, as a purchaser, your attorney or CPA is obligated with your request, to go over the offering plan, all amendments and 2 years financials, to see the financial stability of the cooperative and to see if there are any capital (permanent) improvements to be ordered, thereby the potential of an assessment or possible increase in monthly maintenance fees and for how long?
The next step is the buyer signs first and brings with them a standard (no need to certify) check for their initial down payment and then the contract is sent back to the seller’s lawyer and then the seller comes in and signs with the down payment placed in the seller’s escrow account.

Then the mortgage appraisal is done, board approval, then the final walk thru and the closing is set up.
Hopefully, all will go well, but one must consider and interview and hire a competent real estate broker, mortgage person and attorney as well as an inspector, as needed. We all want to finalize our purchase with the least amount of stress and hassles and by hiring the right people, this will materialize, so everyone will be happy and satisfied at your closing.

Philip A. Raices is the owner of Turn Key Real Estate in Great Neck. He is a Graduate of the Realtor Institute (G.R.I.) and also a Certified International Property Specialist (C.I.P.S.) He can be reached by email: Phil@TurnKeyRealEstate.Com or by Cell, (516) 647-4289 to answer any of your questions. To search for property, see what your home is worth or homes that have sold in your area, go to: WWW.Li-RealEstate.Com or we can provide you a free CMA (Comparative Market Analysis) absolutely “free” without obligation and no strings attached!

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