BUYING A HOUSE

Congratulations. You are about to buy a house. Now what? This purchase is both exciting and anxiety creating. Let's look at what needs to be done.

The first question you must ask is – how much can you afford? This is easier to answer than you might think. Get in touch with a mortgage broker who will pre-qualify you based on your income, assets and debt. Then the hunt is on. Should you try to buy a house without a real estate broker? Most houses are listed with brokers. So if you don’t work with a broker you are missing out on prime properties. But from a financial point of view – a seller who is working without a broker is not necessarily reducing the price because there is no broker. In my experience, prices for properties with and without brokers are virtually identical. Just as you would try to buy without a broker to save money so too would be that seller so you generally wind up paying the same. The bigger issue is that in my experience as an attorney, the deals that break apart are always the deals without brokers.

How do you know what you should offer? The market will tell you that. You will look at 5-10 properties (sometimes more) and get a good feel for the market. We say in our office “There are no stupid sellers and there are no stupid buyers.” People know what they should pay for a house. Make your offer based on what you think you should pay for it. Let’s say the house is listed for $650,000. You have looked around and feel it should be no more than $600,000. Make the offer. All the seller can do is say no but usually there is a counter-offer. Sometimes if your offer is so below what the seller wants there will be no counter-offer but that is very rare. Buyers are often afraid of insulting the seller. Nonsense. This is a major purchase and you don’t have to be best friends with the seller. You just have to pay what you can afford; what the house is worth and the numbers you can agree upon.

What house should you buy? You should buy the house that when you walk in the door you say “This is it.” You should not try to convince yourself that it is acceptable. You are spending too much money for that. Let it sing to you and you will happy with it.

If you have only seen the house at night then go during the day also. Check out the neighborhood.

Now you have made the offer; it has been accepted and you need to do certain things. Get an attorney and get an engineer.

There are some fundamentals in buying a new house including several tests and inspections. These are generally done before the contract is signed but in a hot market you may want to do them after the contract is signed but make the contract subject to satisfactory tests. The tests are:

1. engineer's inspection
2. termite inspection
3. test for radon
4. test for lead in water, air, and paint
5. inspection for asbestos (frequently engineer will do)
6. test all appliances to be sure working and check the heat and the air conditioning systems. Lift each window to see if it moves easily
7. flush all of the toilets to see if there are leaks
8. inspect the ceilings in the rooms and ceilings in the basement to see if there are leaks
9. inspect the floors especially if they are covered with carpet which could be hiding problems
10. prepare a list of all property that is included – the standards are refrigerator, stove, alarm system, air conditioning
11. if there is an unused oil tank you need to be sure it is not leeching

If you don’t have an engineer or an attorney, whose recommendations should you take? Although we at Koppell River Realty have recommendations, we still suggest that you get your own engineer and your own attorney. Why? It is important that these professionals are working ONLY for you and not in the hope of getting other referrals. If, however, you don’t really know anyone then when you make the appointment just don’t say that the broker recommended you.

Be there when the engineer goes over the house. The report of the engineer will tell you a lot. But nothing beats being there and getting the inside scoop on things that will never show up in the report.

If asbestos is found in the house, it must be removed or encapsulated before closing. Tell your attorney about this before the contract is signed.

If there is an oil tank you should have it inspected to be sure it is not leaking. If it is an unused oil tank then you should consider having the contract provide for the seller to have it removed or filled with sand.

Upon signing the contract you are expected to give a down payment of ten percent of the purchase price in an uncertified check made payable to seller's attorney. This money is held until the closing and generally only returned to you if the mortgage is refused. Until both parties have signed the contract there is no enforceable deal and either party can walk away.

Should you go to a bank or a mortgage broker? Years ago I would have told you to go to the bank because the brokers charged more. But now the brokers and banks charge the same (by all means confirm this with your broker) and the advantage of using a mortgage broker is that s/he can shop your loan around for the best rate.

Once a contract is signed you must apply for a mortgage immediately. Note the date in the contract by which you have to get a mortgage. Call your attorney up one or two days before the date expires in the event you have not received notification from the bank that your loan is approved. Although all mortgage people say it will take 3 weeks - it always takes a minimum of 5 weeks.

The process of applying for a mortgage is laborious. Just when you think the last item has been given in - up pops another request. Don't be upset.

You have heard the word "survey." In most cases, the seller has an old survey or your title company can locate one that can be updated at a low cost. If it is necessary to get a new survey the cost is about $500.

Several weeks after applying for a mortgage, your broker or banker will tell you that things look good or maybe even that the mortgage is in underwriting. This is a good sign. It is at this time that your attorney will likely order a title report on the property. The cost of title insurance depends upon the price of the house and whether you are getting a mortgage. This cost is set by the New York Banking Department and is always an annoyance. Title insurance protects you from any liens or from any claims by a neighbor that the neighbor owns some of your property by adverse possession or as in part of New York State claims by some Indian tribes that they own certain property. It is very good to get and if you get a mortgage it is required.

Before closing on a house, you must do a "walk-through." This is done either the day of or the day before the closing. Contact your real estate broker to arrange for this. The walk-through is where you make sure that everything is in working order; that the appliances work; that the faucets work; that the electricity works and that everything that you think you are buying as part of the purchase is there. Check the heat and air conditioning. Lift the windows - look at the ceiling and check the basement for leaks. The house should be in the same condition as when you went to contract. If not, let your broker and attorney know. You will be anxious at the walk through because you will assume that there will be problems. Rest easy. The house is almost always as you expect it to be. If possible, maintain a good relationship with the seller during this process as the seller can be very gracious and leave the house very clean and perhaps leave that piece of furniture you admired or the seller can be a pain.

Between 24 and 48 hours prior to closing your attorney will be given figures from your bank and will tell you how various certified checks need to be cut. More notice would be nice but sometimes the notice doesn’t occur until the day of closing. If you want an estimate about the closing costs, please look at the loan disclosure statement. It is fairly accurate. Do not be shocked at the mortgage recording tax and title insurance charges. They are set fees but always seem to come as a surprise. The major costs include the loan application fee - $450; points - 1 or 2% of the loan (most loans now have no points but you can reduce your mortgage rate by paying one point for each ¼ point reduction in rate); mortgage recording fees – 1 ¾% of the loan less $25.00 if in New York City of about ¾ - 1% outside of New York City; title insurance – depending upon the price of the house and the amount of the mortgage from $2,000 - $4,000 (which includes a lot of incidental fees); bank’s attorney’s fees - $675; credit report - $75.00; recording fees - $150; engineer’s inspection - $550; termite inspection - $85; radon and lead tests - $150.

Before the closing, you will also need to obtain homeowners' insurance. Your mortgage commitment will tell you in what amounts and the name of the bank that needs to be insured. Please call 2 or 3 insurance agents to get the best rates.

The closing usually takes about 2 hours. It can be very easy if the parties have been friendly or it will be a continuation of an unpleasant buying process where everyone has to have the final "gotcha." My advice is to remember that you are starting on one of the happiest times of your life - the purchase of a house and the flavor of the closing will stay with you a long time. Sometime after the closing your recorded deed will be returned and your attorney will give you a closing binder that will include all of the documents you signed at the closing.

So as you embark on this new purchase - know it is filled with bumps in the road until closing and then you have your dream house.

Right before the closing please do two things - get enough SMOKE ALARMS and HI-TECH CARBON MONOXIDE DETECTORS. A small investment of money saves lives and pain.

Please give us a call when you are ready to start looking as we have lots of properties to show both our own and with other brokers.

Lorraine Coyle
Attorney at Law
Licensed Real Estate Broker

© 2004

RESOURCES

Engineers: Tauscher Cronacher – (914) 376-2033
or Evan Grugett & Assoc. Inc. (914) 723-5795
or Allspect, Inc. (201) 445-1404 or (845) 362-0220

Mortgage Brokers – Kenneth Osborn – (718) 549-LOAN (5626)
(631) 288-5626
or
Stacie Handwerker, Esq. - (212) 634-9474

Termite: Exterminall Pest Control Company
1613 Second Avenue
New York, New York
(212) 472-3861
or
1938 Williamsbridge Road
The Bronx, New York 10461
(718) 863-2172

Radon: Professional Radon Systems
306 Dartmouth Court
Paramus, New Jersey 07652
(800) 235-8842
(201) 265-4001

Lead in water: YML Environmental Services
321 Ear Street
Yorktown Heights, New York
(914) 245-2800

Moving company – CeePee Moving Systems – Stephen Coughlin (914) 377-0536
or cell (914) 760-3736
Painter: Danny Nelson (718) 798-9312
Telephone Installation: (718) 796-5454
Appliance Service Connection - (800) 436-7634 (repair appliances)

(No, I do not get a referral fee from them as I believe that would be unethical).

© 2004