Archive for Glossary

People often confuse the first two stages of the mortgage process.  Often they get pre-qualified and mistakenly believe they are pre-approved.  So what’s the difference?

Pre-Qualified:   This is the first step in the mortgage process.  You talk to a lender and give them overall numbers regarding income, debt and assets.  The lender will evaluate the information and give you an idea of how much and what type of mortgage you qualify for. This is sometimes done over the phone and is not a sure thing, only a ball-park of the amount you might expect to be approved

Pre-Approved:  Is much more involved.  Requires an official application and even sometimes a fee; documentation and extensive check on everything you’ve put on the application as well as your current credit rating.  At this point, if approved, you’ll receive an official commitment in writing for an exact loan amount, with conditions.

Generally, getting pre-qualified before you start looking gives you a starting price you can afford so you’re looking at only properties at or below that price.  Getting pre-approved puts you in a stronger position in offers and negotiations and saves some time.

The loan commitment is the final step in the process.  This approves you the buyer to a specific property.  Your income and credit profile will be checked again to ensure nothing has changed since the initial approval.  It is only issued when the bank is certain it will lend you the money.

Adapted from InvestoPedia article by Brian O’Connell 

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Jun
03

ARMs Making A Comback?

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ARM (Adjustable Rate Mortgage) were very popular during the boom years, but fell out of favor because the rates were very close to those of fixed-rate mortgages.  Recently, because of historically low interest rates for fixed rate mortgages, the difference between fixed and adjustable-rate loans is targeted to bet widest in eight years, according to HSH Associates, which tracks mortgage rates.

 Do they make sense?

 Ask yourself:

  • Are you going to stay in the property 5 years or less?
  • Are you going to be able to refinance within 5 years?
  • If the rate adjusts upward in 5 years, are you going to be able to make increased payments?
  • Will you be able to sell for more than the loan balance when you want?

If you are a gambler, betting that interest rates won’t rise or you can sell before they do, maybe.  If you will only stay for 5 years or less, an ARM possibly makes sense.

Let’s look at some numbers.  One popular ARM loan is a 5/1 ARM.  It has a fixed rate for the first 5 years, then adjusts every year thereafter.  A recent ARM 5/1 was quoted at 3.4%.  The average 30 year fixed rate mortgage is 4.72%.  The difference between the two is called the ‘spread’.  In this example, the spread is 1.32%, big enough to save thousands of dollars during the first five years of a mortgage.

Although there are naysayers, ARMs are becoming more attractive, and may be an option for some borrowers. Weigh the pros and cons, speak to your financial advisor and make sure the ARM is right for you.

Based in part on an article from the Wall Street Journal by AnnaMaria Androitis

May
31

New York Mansion Tax? I don’t live in a mansion!

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According to New York State, if the purchase price of an apartment is $1 million or more, you are buying a mansion!  Therefore your purchase would be subject to a 1% Mansion Tax, calculated on the entire purchase price, not just the part that exceeds $1 million.  Buy at $999,999.99 no tax; buy at $1,000,000.00 or more, and you’ll owe $10,000+ tax.

If you’re thinking you’re safe if the purchase price is less than $1 Million, but are paying fees or taxes that would have otherwise been paid by the seller, think again.  Those fees become part of the consideration for the property and could lead to being responsible for the Mansion Tax.

According to Joel E. Miller, a Queens tax lawyer, although the mansion tax is not deductible, however it does increase the property’s tax basis so it will ultimately reduce the tax paid on a gain on the sale of the property.

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May
26

Mortgage Vocabulary for First-Time Coop and Condo Buyers

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Confused by mortgage lingo?  HUD has an entire glossary for you:   

Here’s some samples:

Points:  1% of the loan amount to lower the interest rate, or cover some fees involved with the transaction

 Float-Down:  After locking in your rate, the lender may give you the opportunity to lower your rate if the market rate falls.

Margin:  On Adjustable rate loans, the margin is how much above the index you are going to pay.

Cap: On Adjustable rate loans, the cap is the most the rate can increase in one year.

 Walls in Insurance:  additional insurance that banks may require insuring what’s inside the apartment.

 See the full article and video on ny1.com.

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Dec
04

What’s The Difference Between a Co-op and a Condo?

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Coops Condos in Manhattan NYCCaught in the maze of buying an apartment in New York City? The rules are different in New York City than in other parts of the country! For the inexperienced some of the differences may be perplexing, however, we can guarantee that if you do your homework and keep this guide handy, the process will flow much more smoothly.

New York is a city comprised mainly of cooperative and condominium apartments with a smaller selection of private homes, which we call townhouses or brownstones. Most important is understanding the differences between the types of apartments you will find in Manhattan.

Co-operative Buildings

Cooperatives are not a new concept, although they seem to be a type of ownership that is more common in New York City than elsewhere in the United States. In New York City, approximately 80% of our apartments available for purchase are in cooperative buildings, while 20% are in condominiums. This means two very simple things to potential buyers in New York City:

  1. There is more inventory to choose from if the buyer includes co-ops into the mix of properties, and
  2. Prices are, in general, more attractive for cooperatives – simple supply and demand.

Cooperatives are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Owners, (shareholders) of co-op apartments, actually own “shares” in the corporation which entitles them to a long-term “proprietary lease.” The corporation pays the total amount of the building’s mortgage (importantly, a cooperative may have an underlying mortgage on the entire building, whereas a condominium building must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, in turn, pays a portion of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are dictated by apartment size and floor level.

The considerations when buying a cooperative are:

  1. The Board of Directors has the right to “approve” or “reject” any potential owner. The board, elected by all of the tenant-owners of the co-op, interviews all prospective owners. It has the responsibility of protecting the interests of all tenant-owners by selecting well-qualified candidates.
  2. The quality of services and the security of the building are kept at high standards.
  3. Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as their proportionate share of the interest on the building’s mortgage.
  4. The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to “put down” at least 20 to50% of the purchase price (depending on the building) when purchasing a cooperative apartment.
  5. Subleasing a co-op must be approved by the Board of Directors of the cooperative. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.

With this in mind, it is important to remember that co-ops are the norm here in Manhattan, not the exception. However, before beginning a search for a cooperative apartment, think about the financing limitations and the application and interview process.

Condominium Buildings

While condominiums are quite common throughout the country, they are a rather new concept for New York City. A condominium apartment in Manhattan is real property. The buyer gets a deed just as if he were buying a house. Since this is real property, there is a separate tax lot for each apartment. Hence, this means the buyer pays his own real estate taxes for the property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a cooperative. However, they will not include real estate taxes since these are paid separately, nor will they include the building’s mortgage and interest given that a condominium, by law, cannot have an underlying mortgage. Condominiums are attractive for a variety of reasons:

  1. Financing the purchase of a condominium apartment is governed by the financial markets not a board of directors and thereby much more flexible than in a cooperative. In the past, a buyer could finance up to 90% or more of the purchase price. However, with the current  conservative credit practices, you should be prepared to “put down” about 20% or more even for a condo.
  2. An approval process is usually required, and most condo boards are requiring application packages with financial disclosure. Generally, however, the requirements are not as rigorous as the co-op boards. A board meeting may or may not be required. The length of time for approval varies from building to building, but it is usually not as long as a co-op approval process.
  3. There is greater flexibility in sub-leasing your apartment. This makes condominiums the better choice for investment property.
  4. They are the ideal choice for non-U.S. citizens or for those with their assets held outside of the United States given that co-ops are unlikely to approve a buyer whose funds are not in the U.S.

Given that there are fewer condominiums than cooperatives and that they are “easier” to purchase, they are generally more expensive than co-ops. Additionally, monthly combined common charges and real estate taxes in a condo are typically less than a co-op’s monthly maintenance charges, again resulting in higher purchase prices.

Excerpted and modified from Prudential Douglas Elliman.

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Oct
21

Manhattan Homes, Apartments and Amenities – A Glossary

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Is this really a 2 bedroom apartment?

Is this really a 2 bedroom apartment?

I realized when I did the post of some of the most annoying words in real estate (and real life)   that some of the terms used to describe New York City apartments were inaccurate or misleading.

The most common errors can be found in the room count where alcoves are called rooms (a 3.5 room apartment called a 4 see floor plan left), balconies are called terraces, and the number of bedrooms is just plain wrong/inaccurate and should be called half rooms.

Perhaps more than any other U.S. city, Manhattan has its own distinctive types of housing and there are some standard terms used to describe them.  Knowing the differences can help you choose the best apartment and neighborhood for your needs and your lifestyle.  Let’s define the terms:

Alcove/Alcove Studio

An alcove is an area that’s usually less than 70 square feet adjoining the living room. May be called a half room, often used as a dining room, bedroom or home office. May have a wall added to create a separate room. To be a “legal” bedroom it must be at least 80 to 100 square feet, have a window and a closet.

An Alcove Studio is an apartment with an alcove, often in an L shape.

Balcony

Outdoor space of an apartment projecting out from the building’s façade

Brownstone

Built as luxury homes in the 1800s through the 1930s, brownstones usually have four to six floors and are row houses, sharing side walls with adjacent homes. They may be single family town homes or they may have been converted to co-ops or condos. Likely to have features especially desirable to lovers of old homes – spacious rooms, high ceilings, lots of wood floors and ornamental trim, fireplaces, and yards or gardens. The term comes from the brown sandstone used on the building exteriors. Brownstones don’t lend themselves to doormen, and rarely have them.

Classic

Larger apartments, usually pre-war. Indicates the apartment has a formal dining room. Usually used with the number of rooms, like a “Classic Six”, typically a living room, dining room, kitchen, two bedrooms and a maid’s room.

Condo

Condo, short for condominium, is an alternative choice for apartment ownership. When you buy a condo, you own your apartment outright just like you would own a single family house.  You don’t have to go through the board approval process.  You have more control over your home and  usually, you can rent it or sell it to anyone you choose. More

Co-op

Co-op means cooperative ownership. Rather than owning your apartment, you become a member of the corporation which owns the entire building and you own shares in that corporation. Your ability to buy, sell or rent the property is subject to board approval.  More

Condop

A condop is a co-op with less restrictive condo-type rules. With condops you  own shares in the co-op but the rules are often more relaxed than the standard co-op.  Condops, like most condos,  may allow you to finance a higher portion of the price, rent out the apartment and sell it to anyone you choose with no board approval. More

Convertible, Junior or Flex (also see Alcove)

An apartment with an alcove off the living room. May be listed as a Junior 4, which would mean a traditional living room, bedroom and kitchen plus a living room alcove that may be converted into a separate room or bedroom. To be a “legal” bedroom it must be at least 80 to 100 square feet, have a window and a closet.

Duplex

In New York, an apartment on two floors.

Elevator Building

Generally don’t have doormen; most provide intercom and security systems as well as elevators.

Flip Tax

A flip “tax” is something of a misnomer. Rather than a tax levied by the government, it is an income generating fee used by some co-op’s and, much less frequently, by condos. As determined by the co-op board or condo association, the fee can be on the profit of the sale, a fixed amount, a percentage of the gross or net sale or a fee per share. The co-op or condo by-laws determine if the buyer or seller has to hand over the check.  In reality however who pays the flip tax is determined by market conditions and contract negotiations.

Floor-through

Apartment that occupies an entire floor or half floor of a building. Usually found in low-rise walk-up buildings.

Full Service Building

Built from the 1980s to present modern (but could be pre war as well),, more likely to have facilities such as fitness centers, and both doormen and concierges. Many offer garages.

Half Room (see also Convertible, Junior or Flex)

Usually an alcove, sometimes a large foyer that might be used as a room.

Loft

Usually conversions of former commercial or factory buildings, though some are new construction. Feature very open floor plans, may have period details such as supporting columns. Ceilings are high, up to 20 feet and large windows are common. Utility pipes are often exposed. Doormen unlikely.

Loft Area

In buildings with very high ceilings, similar to a partial second floor accessed by stairs or a ladder. Often used as a bedroom or storage area.

Maisonette

This apartment is usually found in mid and high rise buildings. Has its own entrance to the street like a town house and usually is two stories. Could have access through the lobby of the building as well. A building may have several maisonettes.

Number of Rooms

Other than kitchens, to be counted as a room a space must have at least 100 square feet and a window. Any kitchen except a Pullman is usually considered a room. Baths are not counted as rooms. A three-room apartment is usually a living room, kitchen and bedroom. A four-room would usually have two bedrooms, or one bedroom and a separate dining room.

Penthouse

Apartment on the top floor of a building usually includes an outdoor area (see terrace) on the roof.

Pied-a-terre

Apartment the owner doesn’t use full-time. Typical example would be someone who lives in the apartment when visiting from his/her primary residence.

Post-War

Built in the late 1940s through 1980s, with more modern amenities such as larger closets, laundry facilities, and larger spaces in smaller apartments – studios as well as one and two bedrooms. Fewer architectural details, fireplaces, etc., both inside and out. Most have doormen and live-in superintendents.  May be co-ops or condos.

Pre-War

Built before the mid-1940s, or World War II, virtually always co-ops. Tend to have high ceilings, large rooms, and features like wood floors, decorative trim and fireplaces. Usually 10 to 20 stories. May have doormen.

Pullman or Petite Kitchen

The kitchen is a strip along the living room wall, rather than a separate room. Most common in hotels converted to apartments.

Studio Apartment

The living and sleeping areas are combined. One rooms have Pullman kitchens, two rooms have separate kitchens.

Terrace

Typically larger than a balcony and is open to the sky. Can be part of the building’s roof as in a penthouse or could occupy a building’s setback.

Town Houses

Self-contained homes. In Manhattan, these are likely to be brownstones, typically row houses sharing side walls. Can be single or multi family home and/or could have been converted to a co-op or a condo.

Triplex

In New York, an apartment on three floors.

Walk-Ups

Usually four to five stories with no elevator, built as pre-war apartments. Overall the least expensive kind of apartments in Manhattan. Unlikely to have doormen.

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