Advice for a First Time Home Buyer in New York
Much has been said about who is to blame for this ongoing mortgage crisis. Some, and I believe correctly, point to the lending institutions which made mortgages readily available to those who did not, by any objective standards, qualify for the amount they financed. These people, who only a few years ago, would have had no chance to receive any kind of loan, let alone a mortgage, were now being offered a chance to own a piece of the American Dream. We have seen what, for many, this dream has turned into.
But we all know this. We all know that there is a mortgage crisis and that many people are close, if not in, foreclosure already. What is a first time home buyer to do? Here are a few tips that I tell every one of my Real Estate clients in my practice:
- Buy a home you can AFFORD! This tidbit may seem quite obvious to some, but some of my past clients have attempted to purchase homes they simply could not afford. While ultimately this is your decision as a client, you should nevertheless look at your financial situation before going into contract on a property. Ideally, what you want first and foremost is a strong credit rating,which will enable you to obtain a mortgage at the best interest rates,thereby saving you thousands upon thousands of dollars during the life of the loan.
- Next, look at your monthly expenses. If your mortgage is taking up more than 40% of your net pay, then it is very likely that it is too expensive to purchase.Make sure you realize that the current Real Estate market is not the same market as it was three or fours years ago. I don’t care that your neighbor was able to flip his property in 2004 and make 60% back overnight. This is not the same ballgame. You should realistically expect to hold on to the property for at least 7 years (the national average). Take this into account if your simply thinking of buying a property to fix it up and sell it in a year or two.
- Do you have an emergency fund? Typically you want three to six months of living expenses put away when you purchase this house, so that if you find yourself out of work a year from now, or if some other emergency occurs, you will still be able to pay the mortgage and wont risk hurting your credit or going into foreclosure.
- Find a lender you TRUST. Let me say this again…FIND A LENDER YOU TRUST. In the past few years many people have “become” mortgage brokers. Do not simply hire the first name you’re given. The last thing you want is to show up at the closing and have to pay thousands of dollars out of your pocket for surprise fees that you knew nothing about, and which were not explained to you by your broker. Ask for references from the broker himself. If he or she is an established broker, he should have no problem supplying them. Another option that I frequently advise my clients to look at are online banks such as ING Direct, E-Loan, or E-Trade. These institutions do not typically have brick and mortar establishments. Without physical branches, there are less expenses, which usually means they are able to pass on those savings to the consumer, in the form of better interest rates and a reduction in closing costs. Finally, I recommend perusing www.bankrate.com before you decide on a lender. This site will not only give you a list of national mortgage lenders, but it will explain what closing costs, if any, the lender charges, as well as the interest rate charged for a particular type of loan.
- Finally, consult with your attorney about the above BEFORE you sign that contract of sale. Unfortunately, some “Real Estate” attorneys in New York will simply make a few changes to a Contract of Sale and show up to a closing to collect their fee. You don’t want that, nor do you deserve it. You want an attorney who understands that this is a process with several steps along the way. This is your livelihood and your happiness. Make sure you find an attorney who understands that and will guide you along the way. In my practice,I make it a rule to sit down with a client for at least one hour before we even discuss the Contract of Sale. We discuss their finances, the time frame of living in the property, and what type of mortgage they are looking for and why. Its my job, as an attorney,to educate that client and make sure there are never surprises along the way. Buying a home, after all, still is the American Dream and should be an incredibly rewarding and satisfying experience.