Mortgage Guide

Mortgage Financing and Buyer’s Costs

Tips to Consider When Loan Shopping

Make it a point to ask about points. When responding to an ad or calling a lender to inquire about rates, be sure to check if the quoted interest rate reflects payment of points. Many loan programs allow you to receive a discounted interest rate by paying point or origination fees. One point equals 1% of the loan amount, and the more points you can or wish to pay, the more you can discount your rate. Paying points is not a requirement; it’s just an option lenders offer to accommodate the immediate or long-term monthly payment concerns of home mortgage customers.

Buyers’ Costs

The following costs may vary according to mortgage amount:

• Interim Interest — Interest accrued on the mortgage for the number of days remaining in the month of the closing.
• Mansion Tax — All home sales of $1,000,000 and over are subject to this NY State tax of 1% of the entire purchase price.
• Mortgage Tax — A NY State tax between 1.05% and 1.55% of the total mortgage minus the $30 residential fee exemption.
• Origination Fee — A fee paid at the time the mortgage application is processed.
• Points — Each point is a fee equal to 1% of the mortgage amount.
• Private Mortgage Insurance (PMI) — A premium paid by the buyer to insure the lender if the buyer is borrowing more than 80% of the appraised value of the home.
• Tax and Insurance Escrows — Lender required funds deposited by the buyer into an escrow account, to be used by the bank to pay the next year’s taxes and insurance.

Additional Mortgage-Related Costs

The following costs may vary according to mortgage amount:

• Appraisal Fee — A fee for appraising the value of the property.
• Lender’s Attorney’s Fee — A fee paid to the lender’s attorney for reviewing the title to the property, resolving any title problems, coordinating the closing, typing the bank papers, attending the closing, dispersing the funds at closing, and ensuring the documents are accurate and properly recorded.
• Credit Report Fee — A fee for investigating the borrower’s credit rating.
• Homeowners Insurance Policy — An insurance policy listing the lender as the loss payee. The buyer is required to bring a paid receipt for this policy to the closing. Cost will vary according to type of coverage and insurance company.
• Mortgage Recording Fee — A fee paid to the county clerk’s office for mortgage documentation.
• Title Insurance — A one-time charge to the buyer for insurance that guarantees compensation if the title should prove to be defective (e.g., if the previous owner had a tax lien on the property). Two types of insurance include required coverage of the lender and recommended coverage of the buyer.

Home Financing and Loan Pre-Approval

In today’s competitive real estate market, homebuyers are obtaining a pre-approval for mortgages prior to purchasing a home.

Purchase CEMAs

(CEMA: Consolidation Extension Modification Agreement)

A Purchase CEMA is a strategy for reducing your closing costs when buying or selling a Single Family Home or Condo in NY. New York State has a mortgage tax that applies to all mortgages on all mortgage transactions (except coops). The portion of the tax that is paid by the buyer is 1.05% in Westchester County (the bank pays a portion of the total mortgage tax, too).

However, once the tax has been paid, it may not have to be paid a second time for purchase transactions. A Consolidation Extension Modification Agreement (CEMA) can be used to assign the seller’s existing mortgage to the buyer in the case of a purchase. It is NOT an assumption of the mortgage; i.e. the rate and term provisions of the old mortgage are NOT transferred to the new mortgage. The CEMA reduces the amount of new loan money which must be originated, and this reduces two closing costs: the buyer’s hefty mortgage recording tax bill (less the bank and attorney fees associated with the CEMA) and the seller’s NY State transfer tax bill of $4 per $1000 on the assigned loan amount (up to $500k) for a maximum savings of $2k for the seller.

The ability to do a CEMA is not automatic. Not all banks are familiar with CEMAs (it is a peculiarly NY phenomenon) and for various reasons not all banks are interested in doing an assignment. There are several requirements that need to be met.

• The existing lender must agree to transfer the existing mortgage by assignment to the new lender.
• In turn, the new lender must agree to accept the existing mortgage by assignment and then amend the terms of the old mortgage to reflect the terms of the new loan.
• The original security instruments (note and mortgage) must be retrieved from their archived location as well.
• In addition, for a CEMA on a purchase transaction, the seller must agree to the assignment as there are potential issues of recourse.

CEMAs take time. So, if a buyer and a seller want to explore the feasibility of a doing a CEMA, they must do so at the beginning of the transaction. CEMAs pack a lot of power if the math works (i.e. the savings exceed the costs) and everyone works together on the process. It can also be a useful marketing tool.

EXAMPLE:
Purchase Price: $1,000,000
Loan Amount: $800,000
Seller’s Existing Loan: $500,000
Buyer’s Mortgage Tax Savings: $5,220.00
Seller’s Savings: $2,000.00