First time home buyers, I am nervous so should I buy?
April 3, 2013 Paul A. Sarcona, Esq.
So, you want to buy a house. There are so many thoughts running through your head. Can I afford this house? How much money do I need? Is now the right time to buy? Where do I start to look? Where do I begin? Which realtor should I choose? Do I need an attorney?
All these answers to these questions are not so apparent. From my own personal experience of owning a home, there are so many variables that I did not consider when purchasing a home. For example, my utility bills being so high; my property taxes increasing; furnishing the home; repairs; did I mention the heating bills? Be realistic about the expenditures that you will be making when you purchase a home. Most certainly, you should be informed and you can do this by asking questions to the realtor and the seller of the home you are purchasing. Ask the seller for utility bills and this request is not unreasonable. Ask your inspector about the upcoming recommended repairs or useful life of appliances and mechanical systems. Ask your realtor, the seller, or your attorney about the amount of the property taxes. Ask about the any association fees or whether the property is located in a flood zone (which would require you to purchase a flood insurance policy). Okay, so I scared you off a little bit. I just wanted you to be educated about your purchase. After all, being an informed buyer may save you in the long run.
Why buy now?
Interest rates are at historic lows. Now, one may ask themselves interest rates are low, but how will I know if I am getting a good deal? This is a valid point, but when you buy a stock how do you know that you will be able to get the lowest price and sell the stock at the highest point? Obviously, if you knew the answer to this question, you would not be reading this blog. But, on a serious note, the real estate market was at its highest level between 2005 to 2007. It is a fact that values in the New York and New Jersey areas have decreased, in most cases, 20% from the those values.
This is a buyer’s market. Meaning that the buyer’s have leverage in transactions. Gone are the days, for now, where people are bidding up purchase prices. People are low balling offers so that they could get a good price. How much do I offer then? While the answer is not clear cut because no two houses are the same, your realtor would be able to assist you in formulating your offer. Ask your realtor what are the comparables in the area.
The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. It also authorized a tax credit of up to $6,500 for qualified repeat home buyers. The deadline is set to expire on June 30, 2010 provided that a contract was executed before April 30, 2010. What does this mean? First time home buyers and repeat home buyers who qualify, are able to take advantage of monies available to them with no obligation to the government. For more information to see whether or not you qualify, please visit http://www.federalhousingtaxcredit.com/key_info.php.
Can I afford this house?
The ultimate decision making process of whether you can afford this house is up to you. I once read a letter to the editor in a newspaper that puts the mortgage crisis on simple terms that I think everyone could understand: Only you truly know whether you can afford to make payments. If people understood this concept, we would not be in this financial mess. But, this is a topic that will not be discussed in this article.
Financing is Still Available
Most people begin with little or no downpayment. It was recommended that first time home buyers have a 20% downpayment in order to start looking for a home. However, over the years, the Federal Housing Authority (FHA) has backed loans, which greatly reduce the amount of your downpayment to 3.5 % of the purchase price of your own funds. Of course, great credit, good downpayment (usually 20% or more) and good income is the surest way to secure financing.
Further, there are government grants that assist with closing costs and downpayment assistance. Of course, you must qualify for these grants and certain restrictions may apply. One such grant that I normally come across for New York City residents can be found at this website: http://www.nyc.gov/html/hpd/html/buyers/downpayment.shtml. Of course, you must qualify, but qualified applicants receive up to 6% of the purchase price to be used toward downpayments and closing cost assistance.
Do I need an attorney?
You are dealing with friends and family that seem to know everything, real estate agents, bankers, and a title company. So much paperwork, so many terms and words I do not understand, do I really need an attorney.
Well, being an attorney I would tell you the answer is yes. First off, a bit of non-legal advice that goes a long way with not only purchasing a home – do not sign anything that you do not feel comfortable signing. Once you sign the document, you have a legally binding agreement that can be enforced against you. But, most people do not know how to structure a deal to protect their legal rights and do not know the contents of a legally binding document called the contract of sale. It is usually that one paragraph that can cost you thousands of dollars. Further, the custom of the industry for most counties, including New York City and Long Island, us to have attorneys in each transaction.
Buyer’s guide to a short sale – I want to buy a short sale or a real estate owned property (REO).
First off, I do not want to assume that everyone knows what these terms mean, so here are the definitions of each.
“Short sale” a term to describe a situation where the proceeds of the sale of a home are less that outstanding liens that exist against the property. For example, you owe the lender $400,000 but your house is worth $200,000. If you are unable to pay your loan, you may attempt to sell your home by requesting that the lender accept less money than what is owed.
Real Estate Owned Property also known as REO property is a property which is acquired by lender after no successful bidder at a foreclosure auction.
From my experience in representing parties in these types of transactions, there are many problems that are involved.
If you want to buy a short sale type property, please remember the following:
Lower purchase price – generally, offers for short sales are lower than a straight resale offers. Why? The reason for this is that the seller is not going to gain from the proceeds of the sale of the home, so it is no matter to a seller what the offer is (bearing in mind that this is a primary residence). Of course, the seller would like the offer to be reasonable with the ultimate hope that if the offer is at fair market value, the lender is willing to accept the short sale offer. Usually, financially distressed properties are also in need of repairs. Buyers should make their offers accordingly. While formulating your offer, do not consider what the existing liens are but what the fair market value of the home is.
Why most short sales fail:
- Time factor – banks are quite simply inundated with the amount of files that exist. Many lenders are understaffed and are at a lag time of 6 months or more. You, as a buyer, must understand that this process is time consuming and lengthy. If you are not willing to wait, do not make an offer and waste your time.
- Expenses – with risk comes reward. You will expend monies on a home inspection, appraisal, attorney, title report, survey, etc. and time with a chance that the deal will not go through. While it may seem unfair that you will lose the monies you have expended, you will be rewarded with the ultimate goal, owning a home. I would gladly be willing to spend monies to make sure I have the property that I want to purchase ensuring that it is suitable for me. Meaning, I will spend monies on an engineer and title report rather than waiting for a short sale approval only to learn 6 months from now that the property is not suitable or too distressed to even purchase. If you do not have these monies to spend because you have a tight budget or are unwilling to spend these monies, then purchasing a short sale may not be right for you.
- All lien holders must agree to release the property. Perform a title search to make sure that the lien holders are not many in number. I cannot tell you how many times this results in a deal-breaking situation. Buyer’s attorneys, at the insistence of their clients, do not order a customary title search until a short sale is approved from the mortgage holder. Once the title report is received, it sometimes discloses credit card judgments. Somehow, sellers do not remember be served with a summons and complaint (the start of a lawsuit). Of course, the lender is reluctant to pay off judgments and the seller does not have any monies to discharge these judgments. For example, I once negotiated a short sale where there were three mortgage holders (not the norm) and two judgment holders (credit card judgments). The lender approved the short sale but was unwilling to pay for unsecured judgment creditors. In this situation, the judgment creditor single handedly held up the closing of title because it would not release the property unless they received its full judgment amount. Of course, I worked a juggling act and made all parties concede some monies make it work. But, not every transaction can work because the numbers are just too large far apart.
In closing, I want you to part with this advice, be patient and with risk comes reward.
Filed Under: Real Estate