- The most important item for buyers to understand is closing costs. Attorney, title, mortgage and transfer taxes will add thousands of dollars to the purchase price. It is imperative for a buyer to understand this in order to properly plan their budget. When buying in a condo assume 2.5 to 5% of closing costs based upon the purchase price or set aside 1.5 to 3% for buying in a co-op. Buying in a co-op has fewer closing costs since there is no title as you are buying shares in a corporation.
- If you are purchasing a co-op, you want to make sure that you will have 24 months of mortgage and maintenance in reserves post-closing to pass a co-op board.
- Do not make large purchases such as car, furniture or appliances or change your job right before securing a mortgage. This can have a negative effect on your bank financing. The lender will recheck your credit score and employment status right before the closing.
- Do get pre-approval as soon as possible. This makes you a credible buyer. Without the pre-approval, you cannot receive an accepted offer from a seller. The pre-approval will also give you a firm number for a maximum budget, so you do not waste time viewing properties that you cannot afford.
- Know your debt to income ratios. Banks will not loan above a 43% debt to income ratio. In addition, it will be very tough to get approved in a co-op above a 28% debt to income ratio.
- Banks will look at your last 60 days of bank statements. Banks will go line by line over incoming cash. They will ask where it came from. So any non-employment cash items may affect your financing. Any funds received prior to the last 60 days are now considered your funds, regardless of the source.
- Hire a knowledgeable and experienced buyer’s broker. Do not try to do a friend a favor that just started out. This is a major purchase decision. An experienced broker will know the right questions to ask, how to market you to the seller and negotiate on your behalf and will have plenty of mortgage, attorney, architect and contractor contacts to establish your team. In addition, the buyer’s broker will work with you on the board package and if it’s a co-op, the board package will need to be pristine to pass the co-op board.
- When making an offer write a letter to the seller explaining why you want to purchase their home and mention your background. These letters can help save you money and can make the difference in a bidding war.
- Understand the timeline for purchasing a home. The timeline can be very different depending upon financing versus all cash, single-family versus condominium or co-op. From the day you receive an accepted offer, it will take approximately two months to close on a condominium and three to four months to close on a co-op.
- Spend significant time in the neighborhood that you are thinking about purchasing. Visit neighborhood restaurants and stores so you can imagine being a resident in that neighborhood.
- Find a real estate attorney before submitting an offer. The process can move very quickly after you submit an offer. In addition, make sure you hire an attorney who specializes in real estate transactional law. They should also charge a flat fee. It is a red flag if they want to be paid by the hour.