If we had a nickel for every time a first time buyer asked us to hold their hands and lead them to the promised land of outrageous debt, we'd be at home rolling nickels right now. Thankfully, "a 30-year-old single male living in Park Slope" just dropped a home-buying primer for the ages in the tipbox. After you've digested these six nuggets, we encourage you to add your own three cents in the comments. See, learning is fun.
"I've been looking to purchase a home for the past 2 years, off and on," writes our tipster. "I finally found a one-bedroom apartment in Chelsea that is perfect for me right now. Currently, I am waiting for my co-op board interview. Anyway, purchasing this apartment has (and continues to be) a very valuable learning process. Here is a list of things I've learned:
1) When inquiring about square footage, DON'T simply ask what the square footage is...ask "what did the seller's most recent APPRAISAL list the square footage as?" EVERY seller has an appraisal of their property and the square footage on the appraisal is the only number that counts. Often sellers and/or real estate brokers will over-estimate the square footage and/or count areas (such as under the sink, etc.) that an appraiser will not. A lot of lenders will not approve loans on co-op apartments that are under 500 square feet. The seller of the apartment I'm purchasing said that the square footage was 500 feet. When I got the appraisal done, it came back at 466 square feet...and several lenders walked away, thus limiting my loan options. So, you must ask SPECIFICALLY for the square footage recorded
on the most recent appraisal of the apartment. 2) Speaking of appraisals, most mortgage brokers will act as the middleman by charging you an appraisal fee and then hire the appraiser to appraise the apartment. In turn, THEY become the appraiser's client, not you. Mortgage brokers see it as insurance to keep your business because if for some reason you want to change mortgage brokers after the appraisal, then you have to pay for a whole new appraisal because the mortgage broker owns that appraisal...they are the appraiser's client, not you. And if for some reason you need to switch mortgage brokers after the appraisal has occurred, odds are that they will not give up that appraisal. Stay in control of as much as you can. Tell your mortgage broker that you are getting the appraisal on your own and you will provide them with the necessary documentation to give to the lender. The appraisal should have YOUR name on it, not your mortgage broker's or anyone elses. 3) In purchasing a co-op, not only do you have to put down whatever percentage of the purchase price the co-op board requires (usually 20%), but on top of that, the rule of thumb is that they want to see 2 years mortgage + maintenance fees liquid in your bank account(s). For example, if your monthly mortgage payments PLUS your monthly maintenance fees equal $3,000/month, then you need to have $72,000 cash in your bank account...remember, hat's NOT including the downpayment and closing costs (which are typically 1% of the purchase price). This rule varies from building to building...but again, the rule of thumb is 2 years.
4) Chose your mortgage broker wisely! There are a lot of rotten ones out there. Again, I learned this the hard way. The best way to find one is through referral...Meet with a potential mortgage broker face to face before agreeing to continue. Do they seem honest? Are they knowledgeable? Can they explain things clearly to you?
5) When you're lender and/or mortgage broker asks you "what's your annual income" DO NOT ESTIMATE! He/she will ask it very casually, but the amount you tell them is the foundation on which they build your profile and loan pre-qualifications. Pull out your 1040's because what they are REALLY asking for is your "Adjusted Gross Income" (line #37 on your 1040 tax form) for the past 2-3 years. Give them THAT specific number for each year. Also, if you have a lot of write-offs, also give them your "Taxable Income" amount (line #43 on your 1040 tax form). That's basically your income minus your write-offs. Lenders care about your "taxable income" VERY much. Again, do not estimate. Otherwise, they'll promise you the moon but once you pay their fee and they start to put in the specific numbers, they'll tell you that you do NOT qualify for that original loan. It's happened to me...BE SPECIFIC.
6) Until an contract is signed between you and the seller, assume the seller is entertaining other offers because they likely are. Even if your offer is accepted, the seller is obviously NOT contractually obligated to selling the property to you until the contract is signed. Having said that, you have to find a balance of moving forward aggressively but also at your comfort level. The contract should have contingencies that protect you...meaning if certain findings come unexpectedly AFTER the contract is signed, then the contract should state that you have the right either no longer honor the contract or re-negotiate deal (which usually means the purchase price) with the seller. The most common contingencies are: 1) the appraisal - if it comes in lower than the purchase amount...2) the bank's approval of the apartment and the building for the loan...3) the inspection. Notice that they bank's approval of YOU for the loan is not a common contingency. TO get a loan, the bank must approve 3 things: you, the apartment, and the building. You should know whether or not YOU can be approved before you sign the contract. Ask the bank for a commitment letter. Otherwise, you could lose your downpayment, which is due when you sign the contract.
Rebuttals, ruminations, and real life tales in the comments, please.