A 700 Billion Dollar Bailout and what it means to Real Estate Purchasers in New York
By: Daniel Gershburg, Esq.
So you’re looking to buy your first property in New York during the most uncertain financial period since the Great Depression…what can you expect?
Despite what your recent watercooler conversation would have you believe, banks are still giving out mortgages…for now. The difference is that it will likely become tremendously more difficult to qualify for a mortgage in New York in the near future.
What does this mean if I live in New York City and I have bad credit?
What that means to someone with bad credit is that they will not be able to qualify for mortgages they could have qualified for a few years ago. And that’s a good thing. Not to go on a tangent (and to alienate potential clients) but its about time we stopped lending to many people who, apart from a few exceptions, cannot pay back their loans. That’s not to say that there aren’t people with bad credit in New York City who arent to blame. It simply means that there are many people with bad credit in New York City who ARE to blame. So if you’re one of those people my suggestion is that you continue to work hard to improve your credit score so that when this financial crisis finally passes, you’ll be able to purchase a house you can afford with much better rates.
What does this mean to people in New York with good credit
For people with good credit there will be less of an impact, however the standards that lenders use will become even more stringent. That means if you’re applying for a mortgage to purchase a property in, lets say, downtown Brooklyn, you’ll likely have to put much more down as a down payment. Your finances, employment history, debt to income ratio, liabilities, etc. will be looked at far more in depth. The bank will evaluate and appraise your new condo or single family house much more stringently. The value of the home may be far less than what you suspected, thereby directly affecting the amount the bank will lend you. IN short, you’ll still be able to buy, provided your bank hasnt gone belly up, but it will be much more time intensive and potentially costly.
The Lessons for a Purchaser in New York
There are some lessons to be learned in all of this. It sounds quite paternalistic but it holds true.
- Don’t buy what you can’t afford and
- Stop “leveraging” already.
I’ve dealt with so many mortgage brokers in New York in the last few years that talk about the concept of leveraging in the consumer world. Its nonsense. What they mean is using your home as an income producing tool by refinancing, taking cash out and then investing in remodeling, a vacation house, or an annuity. Great advice. You should also take out the kids college money and go to Vegas and bet on red (Not legal advice…seriously).
We earn fees on these closings and re-financings. By we I mean lawyers, bankers, mortgage brokers, real estate agents, appraisers, title insurance companies, lenders, New York City, New York state, the Federal government. You tend to speak to any of these people after you’re done with your closing and everyone gets paid? I didn’t think so. I’m not at all suggesting that the above aren’t good people or looking out for your best interests. Its just food for thought.
A house is a house. It’s not a bank account, its not a loanshark, its not a rich grandparent. Its a house. Use it to live in and grow in. Use it to put money in so that you’ll be able to retire one day. But buy one you can afford. Not one you can afford 5 years from now if the market goes up. Not one you can afford if you get that new job. Not one you can afford if you redo the kitchen in granite, put egyptian tile in the bathroom and then flip it for a magical profit. We’ve all gotten a bit ahead of ourselves. Start trusting your gut. If you think you can afford it because you’ve saved up and lived below your means, than buy something you like AND can pay for. But if you’re buying something thats worth fifteen times your annual gross income, and you think its a sure thing that the price will go up…then I have this bridge I’d like to sell you.