by: William E. Duquette
Host: Hello and welcome to Upfront and Legal, the series that helps us understand how some good advice can save a lot of grief - and money too! On this edition, Bill Duquette of the law firm of Jacobowitz & Gubits, Walden and Monticello, takes us through the first stages of home buying for potential first time purchasers and for those who can benefit from an informative refresher course. Seems it's quite a journey to get to your dream house. Bill Duquette, how do you begin?
BED: Well, like with any project you have to count the costs. It's good to start off with a reality check, especially everybody here is about this sub-prime mortgages and failures and things like that. But people who have done a reality check and can afford it are in a good position to buy a home.
Host: Let's start talking about dollars and cents. For example.
BED: As an example with a $300,000.00 home, 90% financing, you'll be financing about $270,000.00. One thing you have to decide on is when your going to pay that $30,000.00. If you pay it on the signing of the contract, that money would be at risk as opposed to if you pay it at the closing, then your money, not as much money is at risk if you don't go through with the contract. One thing we find that a lot of people aren't aware of and comes as a shock to them, is all the costs involved in the purchasing a house. Closing costs, your title insurance, recording fees, mortgage recording fees, for a $300,000.00 house would probably run you about $5,000.00, depending on the attorneys another $1,000.00, escrow and taxes, the bank's probably gonna want you to pay those up front and the adjustments for the Seller's pre-paid taxes. Figure another $6,000.00, your homeowners insurance $700.00. Your always gonna have surprise maintenance and expenses after the fact, after you close. So, in this example, we are looking at about $53,000.00 that your going to need between your $30,000.00 down payment and these other expenses.
Host: $53,000.00. That's a reality check. What comes next?
BED: Then you have to find a lender. And the decisions there are do you want to use your local bank where you'll have people that you know and they will be there the whole time or a internet lender where your not sure whose going to be servicing your loan in the future. There's also pre-qualification verses pre-approval. Pre-qualification is just a quick check the lender will do on you, putting in your social security number, checking your credit rating, or as pre-approval means they've already approved the amount of the loan for you. Lenders will ask you to pay a rate lock fee. Well, if the interest rates haven't been increasing then it could be a waste of money to lock in a rate. A lot of the interest rates haven't changed in 6 or 8 months.
Host: And don't lenders look for a certain relationship between the value of the home and the
amount of the mortgage? That traditional 20%, how's does a buyer handle that?
BED: Well, you have to decide how quick is it going to take me to get that 80/20 loan to value ratio and some banks offer pre-paid PMI. It's $6,000.00 up front but if you can add that in to your financing, it may only increase your monthly payments by $50.00 a month. And also for first time home buyers there's many programs, the State of New York has programs, the US government has programs to assist first time home buyers.
Host: What's an example of a pit fall that just might not be in a government hand-out?
BED: One thing you want to watch for is homeowners insurance. I know in my own case, that it had the incorrect start date on it and my house would of been a day without homeowner's insurance and if a fire would of happened, we would of been out of luck there.
Host: If the math makes sense, the potential buyer does what?
BED: Well, once you've decided that you can afford the house, you have to find the house. One thing you have to remember is, the real estate agent, while there's a lot of good ones out there, you have to be careful because they are in the business to sell homes and they get paid to sell it. They're not necessarily your friend, they're not necessarily looking out for your best interests. We had one situation where the seller was willing to pay a $10,000.00 repair credit but the bank wanted 150% or $15,000.00 held in escrow. The real estate agent was pushing for the seller to do this but the whole purpose of that escrow is to pay for repairs and if there were cost overruns, it would of come out of the seller's money. Not in the sellers best interest to do that.
Host: Well, the hopeful buyer probably checks real estate listings. What to look for there?
BED: When you look at the real estate listings in the Multiple Listing Service, you have to realize that there's the written verses reality. Cute and quaint equals small, needs work, TLC means it's a mess. One situation talked about this river being just through the woods. Come to find out it was 4/10th's of a mile and you would of had to cross 3 other people's property to get there. Another one with a water view, if you were up on the deck and looked very carefully between about 3 other houses you could see a little bit of Orange Lake.
Host: Well, all that sounds important and then there's the green house itself.
BED: Well, location is really important. Is it convenient for your work? Are there stores around? You also want to be aware of the time of day, is it on a commuting route, will there be a lot of traffic, is there a fire station just down the street where the fire horn is gonna go off and rattle your world? What about dogs in the neighborhood? My wife and I looked at one house where there was 2 dogs right next door and they yapped the whole time we were there. If you have children, school district is gonna be very important. What about the features of the home? How many bedrooms are you going to need, the number of baths. Does it have a garage? Does it have a basement? Basements, people don't think too much about but the added storage that you get in that can make a big difference. What's the condition of the house? Is it move in or is it a handyman's special? A lot of sellers will say well my house needs $30,000.00 worth of work so I'm
just gonna drop it by $30,000.00 in the sales price but is that really realistic? Are you going to do $30,000.00 worth of work with your own sweat labor or to have to do that instead of the seller? No, your going to want $50,000.00 or $60,000.00 off and make it worth your while.
Host: All of which makes for a really good advice. Other suggestions?
BED: What about the age of the structure? Is it up to code? The wiring, does it have insulation? A lot of your older houses don't. Is there asbestos in the pipes or the siding? Is that going to have to be removed at some point which is an added expense. Your real estate agent can help you out with the changes in the listing price, how long has it been on the market, has it been on the market for a year? If so, why? Is the seller being unrealistic? We find some cases where the seller must find suitable housing. If that's the case, then, you don't know when your going to be able to move into your new home.
Host: That covers major issues involved the home and the neighborhood. How about services to the building?
BED: Well and septic verses public water and sewer. Septic systems can go. It's another big expense. Wells may have to be re-drilled as opposed to public water and sewer where the municipality basically takes care of that. What are the utilities available? Is cable available? Wireless internet connections? You need that for your business. What about the heating fuel. Is it propane? Is it natural gas? Is it oil? Speaking of oil, underground storage tanks are a big issue. Matter of fact, we have an attorney in our firm who had a case where the underground storage tank was filled. Later on he did some digging in the back yard and they found a leak and it was over $10,000.00 to get rid of the oil there.
Host: Can we get back to the matter of adjacent homes and homeowners. How do they really figure in the home buying process?
BED: Well, access, does it have a shared driveway with a neighbor? There was just an article in the paper not too long ago about how their going to court because one of the neighbors is blocking the other one's access over it. Who maintains it? What condition is that common driveway in? Is it a recorded easement? All things that should be taken into consideration. How close are you to a river or something that flood? Do you need flood insurance? That's another added expense. Of course if it's a condominium or homeowners association there's going to be a lot of restrictions and additional fees. If it's a new offering there would be an offering plan that's been accepted for filing by the Attorney General's office. If not, you're going to want to review the bylaws and see what happens there.
Host: So much to think about. Anything else?
BED: What about taxes? What are the taxes on the property? You could 6, 8, 10,000 dollars a year extra in taxes for the property.
Host: Even second or third time homebuyers might stumble without a checklist including all of this, but first timers...
BED: Well, many people go right to the offer, but this is a good time to find an attorney and get some advice before you make that offer. Some things you want to look for are: is the attorney going to give you personal attention? Are they going to be available to speak to you or are you going to just be speaking to their assistant all the time? How long is it going to take them to review the contract? Is it going to be a matter of hours or are you going to have to wait weeks for that? Does the attorney actually read the contract? A lot of attorneys just send a standard rider that says something to the effect: if the main body of the contract says A then B. It doesn't even look like they read the contract. So a lot of times you get what you pay for. There are attorneys out there who do real estate closings very inexpensively, but you have to be careful that they are going to give you the service and the attention that you need. Are they going to raise issues that you don't ask questions about? They see something and bring it to your attention to help protect your interest.
Host: Well, with or without legal advice the sale must be closed, if it's to be a sale.
BED: OK, well you're going to have to make an offer on it and you'll have to discuss this with your real estate agent whether or not you want to have verbal negotiations or make firm written offer. Sometimes the seller will only accept written offers, but it's something you have to decide. Another thing is the State of New York requires a Property Condition Disclosure Statement to be given to a purchaser prior to signing the contracts. You'll have to check to see if that's available. Your real estate agent would be able to help you with that. Another thing that can help you is comparable properties, properties in the neighborhood that have sold that are similar in size, and they can tell you what they've been selling for. There are websites like zillow.com that you can go on and check these yourself. They won't be exact, but the information is there.
Host: That web address again is zillow z-i-l-l-o-w dot com for market value information or uspdr.com for assessment information. Following this commercial break, a discussion on today's presentation and your opportunity to speak with Bill directly.
[silence]
Host: Next week, Bill moves the process forward toward the all-important closing and tells us whether he thinks the whole exercise is worth it.
If you have any questions you'd like answered about home buying, you can call Bill Duquette direct at 845-778-2121. Just tell the operator you listened to Up Front and Legal and you have a question for Bill.
