Welcome to the ‘American Dream’ of owning your own home! I hope this summary will help you navigate through the journey of finding, financing and buying a new home in a country where the process can be, pardon the pun, ‘foreign’!
There are several steps you need to take before you move into your new home, and our emotions don’t always allow us to take them in the most efficient order. The first step should be consideration of your financing.
THE FINANCING PROCESS – HOW MUCH CAN YOU AFFORD?
Calculate your budget, taking into consideration property taxes, which can be rolled into your mortgage for ease of payment.
The first step is getting pre-approved for a mortgage. (A mortgage is an advance of money from your lender that will cover the finances of your new property. You must pay this back over a period of time plus interest.)
A pre-approval uses basic information as well as electronic credit reporting to determine whether a lender will loan you money, and how much. This is a commitment from the lender to support your new purchase.
A pre-qualification in not a mortgage approval, but simply an estimate of what you can afford. You do not have guarantee of funds.
Buyers that have a pre-approval are more attractive buyers to the seller, and have a better chance of getting a property when they make an offer. This is an essential start to the process!
To apply for a mortgage through your financial establishment, or mortgage broker, (it pays to shop around), you will need the following documents:
Two most recent pay slips
W-2’s for past two years
Federal tax returns for the last two years
Last two months’ bank statements
Long-term debt information (credit cards, child support, auto loans, installment debt etc.)
As Expats, you may be required to supply additional information, depending on what credit rating you have acquired during your time here.
A Social Security number makes life so much easier!
Mortgage applications usually take 45-60 days; sometimes up to 90 days depending on how long it takes the lender to get all the necessary information.
Deciding on a mortgage is usually based on the interest rate of the loan and how much time you’re given to pay the lender back. You can get a Fixed Rate Mortgageor an Adjustable Rate Mortgage (ARM).
FIXED RATE MORTGAGE
This is a traditional method of financing a home. The interest rate stays the same for the entire term of the loan – usually 15-20 years. This means that the interest and the principal (original sum borrowed) portions of your monthly payment remain fixed. Payments are stable and predictable, but initial rates tend to be higher.
ADJUSTABLE RATE MORTGAGE
The interest on an Adjustable Rate Mortgage is linked to a financial index, so the rate fluctuates with market changes. Thus, payments will vary over the life of the loan. Most have a lifetime cap on rate increases to protect the borrower.
The advantage is that it offers lower initial payments and makes it easier for buyers to qualify. Some are converted to Fixed Rate Mortgages, usually in the first 5 years.
There are many different mortgage products available. To explore further options, such as New Construction Loans, VA Loan(a loan made by a private lender which is partially guaranteed by the Veterans Administration), FHA Loans(a loan insured by the Federal Housing Administration), 5 and 7- year Balloon Loans, consult with your mortgage professional.
When Calculating Your Budget, here are some expenses to consider:
Down Payment - this is the percentage of cash that you will be contributing to the purchase price of the property. The larger this amount, the smaller your mortgage, and the stronger your offer will be. In the current market, 20% is customary, 10% being paid at contract signing, held in escrow (in trust as security by the sellers attorney). If you plan to contribute less than 20% as down payment, you will be required to purchase Private Mortgage Insurance (PMI), which is insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.
Monthly costs such as mortgage, insurance and taxes
Points - borrowers have the opportunity to reduce the interest rate on their mortgage by paying points at the beginning of the loan. One point is one percent of the new loan.
Additional possible fees as shown in the Buyer’s Cost Worksheet - click here
Ask your lender to provide a list of estimated closing and related costs. Some will refer to this as ‘a good faith estimate’. Also ask if there is a Prepayment Penalty (a charge to the borrower who pays a loan before it is due).
Lending institutions request a credit report and verification of employment and assets. (You will receive an estimate of your loan costs in form of an initial Truth in Lending Disclosure Statement.)
Lender evaluates the application, if everything is in order, will approve the loan, and will supply you with a Pre-approval letter, and ultimately a commitment.
Now the search begins, and you are confident with your financial responsibilities.
LET THE SEARCH BEGIN!
Unlike many of our countries of origin, the role of the Real Estate Professional is very different. Realtors represent both buyers and/or sellers, in different capacities. A buyer’s agent has a fiduciary duty to YOU, the buyer, and a seller’s agent has a fiduciary duty to their client the seller. It does not cost you as a buyer to work with a Realtor. In fact, it is to your advantage to have a professional working FOR you with your best interest at heart. Here in Westchester, all Realtors can show you all available properties as the listing data and information about properties is made available to all Brokers via a Multiple Listing Service. Here the seller’s broker shares property information with other Realtors who may represent potential buyers for the property. These details stored in a multiple listing services’ database are the proprietary information of the broker who has obtained a listing agreement with a property's seller.
Choose a Realtor that has solid knowledge of the area of your search, and if you decide to look in areas outside their expertise, ask them to refer you to a trusted colleague in that area. It is customary to work with one Agent, and in doing so you will find just what you want in your new home, in the shortest amount of time. Your Realtor may ask you to sign a Buyer Agency Agreement, confirming their fiduciary responsibilities to you, and your commitment to them.
The first step is to determine what the criteria for your new home is. What are the most important requirements, what are ‘needs’ Vs ‘wants’! Your Realtor should supply you with local information and useful websites regarding the schools and what the community has to offer.
It is important to note that in most communities, the location of your potential new home, and its designated school is governed by the local school district. If you have a preference for a particular school district, or elementary school, you must search for homes in that area. There is absolutely no guarantee that a school district will consider your child attending their school(s) on a paid in tuition program if you are not in their designated area. If this option is offered, it is advisable to seek information regarding tuition fees prior to making your decision. Moving within a school district also does not guarantee continued enrollment at your previous elementary school.
The more that your Realtor knows about what is important to you, the easier it will be. Make a list of criteria which is most important to you, and what you would like, but may be able to do with out. his will help prioritize your needs and wants.
THE POWER OF THE INTERNET
Your Realtor can set up a search for you to alert you to all new properties that come on the market that meet your needs. There are many Real Estate search engines available to you, Realtor.com, Trulia, Zillow to mention a few. But it is worth confirming information found on these websites with your Realtor, as not all is as accurate as it should be. The most efficient way to search for properties on the Internet is via your Realtors accessible website. Not only will you have access to accurate listing detail, but also you’ll learn about any neighborhood that interests you such as community, school systems, climate, demographics and the prices of recently sold homes.
Open Houses are a great way to get a feel for a specific property and neighborhood. Your Realtor will inform you of upcoming Open Houses, and/or they are listed on the Internet and sometimes in newspapers. The New York Times and Journal News are the most popular. OpenHouse.com is a quick reference. When visiting Open Houses, you should disclose to the agent that you are working with and give the name of broker, and that you have a Buyer Agency Agreement with her/him.
You have found your Perfect Home!
Your Realtor will write up your offer to purchase the property. The offer will include;
Percentage of Down Payment (10% to be paid at contract signing)Less than 20% down Payment will require Private Mortgage Insurance (PMI).
Any Contingencies such as Mortgage, Sale of current home.
Preferred Closing Date (Mortgage applications usually take 45-60 days, sometimes up to 90 days depending on how long it takes the lender to get all the necessary information).
Inspections to be carried out, most common are Engineer, Radon and Pest, Lead, Septic and Oil Tank Testing may be considered necessary.
Any additional note that may be relevant.
Be Aware that if the home you are purchasing in NY State is over 1 million dollars, an additional 1% of the selling price will be required to be paid to the state by the buyer. This is known as Mansion Tax!
E.g. House Sales Price - $1,200,000, Mansion tax due will be $12,000.
The offer to Purchase should be accompanied by your pre-approval from your lender. (In most cases, a lender can make minor changes to the pre-approval if needed.) This will all be sent to the seller’s broker.
Back and forward negotiations may take place to iron out the terms that are acceptable to both parties. You need to keep the communication going even if you are at your maximum. The seller will not necessarily get back to you if you don’t.
If there are several interested parties in the same property, the seller’s broker may ask for sealed bids. In this case you should make your highest offer with the best terms that you feel comfortable with. Some agents will encourage you to remove your mortgage contingency making it a more attractive offer. Keep in mind that if for ANY reason, (not limited to but including loss of employment or illness), you do not get your mortgage, you stand to loose your 10% deposit!
YOUR OFFER IS ACCEPTED
Now you have an Accepted Offer (AO), there are various steps that need to be taken before you close, and glitches may need to be worked out.
Complete your loan application in order to receive your clear ‘commitment’. This means that the bank has all necessary documentation and the mortgage is no longer contingent on anything.
Employ a Real Estate Attorney. (It is advantageous to use local lawyers).
Inspections should be ordered and completed as soon as possible. Your Realtor will supply you with several companies that you can select from. If results of some tests are outstanding at the time of contract signing, make mention to, and discuss with your Real Estate Attorney.
Any repairs or negotiations resulting from the inspections should be completed. Generally, inspections are to tell you what is right and wrong with the house, not to negotiate the price.
Your lender will appraise the property (a professional estimate of the properties value). If it is appraised below the agreed purchase price, you will need to make up the difference. The seller may be willing to compromise, but there is no guarantee.
The property should be surveyed, or a current survey made available.
The title is analyzed and title insurance commitment is issued.
You have to take out homeowners insurance.
Please be aware that there is no guarantee that you have a deal until both buyer and seller sign the contract.
Conditional Contract Signed - CCS - Any contract that includes conditions that must be satisfied before the parties become bound to carry out the terms of the contract. A conditional contract is still legally binding, but the obligations under it are suspended until it becomes unconditional.
Unconditional Contract Signed – UCS - This means that the offer you have made on a property has no conditions attached to it, or the conditions have now been met. The contract is now legally binding and you are committed to buying the property on the agreed date, at the agreed price.
TWO WEEKS PRIOR TO CLOSING
Here is a checklist of things to do about two weeks before closing.
Contact provider to set up gas and electric services, Con Edison is the most commonly used in Westchester 1 800 75-ConEd www.coned.com
If house is heated by oil, notify the fuel company to set up your account.
Call to set up water service prior to closing.
United Water Company www.unitedwater.com 914.632.6900
Westchester Joint Water Works (3 day minimum notification) www.wjww.com 914.698.3500
Set up Telephone service
Set up Cable and Internet Service Provider, packages can include Telephone.
Complete forwarding address notification. www.usps.com
Notify Moving company of final closing date.
Notify others such as landscaper/chemist deliveries/insurance
This is the meeting where the sale transaction is finalized. There is much paper shuffling, signing, transferring of monies and title change of the property. It is usually held at one of the Attorneys offices by mutual agreement. There will be Real Estate attorneys, a Bank Attorney, Title person, Realtors and most importantly, YOU! You can meet with your attorney and pre-sign all documents, but this is something you should experience! It does take a couple of hours, so be prepared, and all parties listed on the deed must sign.
In Real Estate transactions, the seller has the choice of presenting a Property Disclosure Statement which includes the age, condition and features of the property, (this protects the seller against liability from a buyer who charges that she was not made aware of a particular condition), or giving a credit of $500 to the buyer, freeing them of any liability which may stem from a condition unknown to them. The $500 credit is usually the preferred choice.
The buyer must arrange for a walk through prior to closing with their broker so they can be sure that the home looks the same as when they negotiated on it. Test all appliances, toilets, oven, stove and tubs to be sure everything is working.