Mortgage contingency

You'd be a fool in this market not to demand a mortgage contingency.

Sellers aren't in a very good position right now, so let them sweat. There are thousands of apartments on the market.

In the meantime, rent: nybits.com. You'll find that it costs about half what it costs to buy a similar unit.

Texaninnewyork99, I don't necessarily disagree with steve here, but I wouldn't be so quick to tell you to rent (this is his MO, as you can probably gather from reading other threads here). If you are serious about buying though (and it seems you are if you're putting in an offer), then you should be able to demand a mortgage contingency in this market, unless you're really 100% certain you're going to get financing. You don't want to lose your deposit though if the outcome isn't so clear though. And the seller should certainly come to grips with the realities of the market right now instead of complaining about this. Don't be afraid to push the issue and tell them you'll walk otherwise. I'd call their bluff here.

Texaninnewyork99, I don't necessarily disagree with steve here, but I wouldn't be so quick to tell you to rent (this is his MO, as you can probably gather from reading other threads here). If you are serious about buying though (and it seems you are if you're putting in an offer), then you should be able to demand a mortgage contingency in this market, unless you're really 100% certain you're going to get financing. You don't want to lose your deposit though if the outcome isn't so clear though. And the seller should certainly come to grips with the realities of the market right now instead of complaining about this. Don't be afraid to push the issue and tell them you'll walk otherwise. I'd call their bluff here.

Mortgages are more difficult to obtain in this environment even with scores above 760 and they may want more of a down payment. Unless you could pay cash and maybe get a mortgage later, I would want a mortgage contingency. If you were to show the seller and/or the board your financials and they think they are good, they may do without the contingency.

"There are thousands of apartments on the market." Your analysis consistently dismisses the unique nature of real estate to the non-investor who wants to actually live there and enjoy his apartment as a home. There might be a 1000 apartments on the market, but you can't just substitute one 2-bed co-op for another and say it's all the same.

Texan - you really need to weigh the importance of a mortgage contingency to you with your desire to have this particular apartment. While it is fraught with risks to take out a mortgage contingency from your contract(and I would never do it for myself), if you are 100% sure that you can get the financing (or comfortable enough to take the risk), than so be it. Only you can decide. As steve rightfully implied, though, you are "generally" in a better position to negotiate this point today than, let's say, 2 years ago. I lost an apartment about 5 months ago because I wasn't willing to give this point up and another buyer was.

"Unless you could pay cash and maybe get a mortgage later"

That would technically be a second mortgage and the rate will be higher. Check Fannie and Freddie's guidelines if it's conforming; if it's nonconforming, forget about it.

Although they're becoming more common sellers are understandably reluctant to give up the ground -- I'd say we're seeing them in about 1 of every 3 deals, as opposed to maybe 1 of every 10 a few years ago.

However, I don't see how that's relevant. Either you need one, in which case you keep bidding on different apartments till you find someone who will grant one to you . . . or you don't, in which case you should use the fact that you don't need one and can close quickly to brush back the price a little.

BTW, credit is very tight. For a two-bedroom loan most banks are expecting 25% equity and you would do better with 30% (the co-op itself may be stricter than this anyhow).

ali r.
{downtown broker}

"Your analysis consistently dismisses the unique nature of real estate to the non-investor who wants to actually live there and enjoy his apartment as a home."

No it doesn't. It says what it says.

"you can't just substitute one 2-bed co-op for another and say it's all the same."

Yes you can - people do it all the time.

Watch House Hunters: every property has its pros and cons, and it's a balancing act.

"every property has its pros and cons, and it's a balancing act" - I don't deny that, but the pros and cons are subjective to each person. If texan likes all the pros in this specific apartment, for you to say there are a 1000 others ignores the fact that he already made this balancing act. It's like telling a guy who found the girl of his dreams if it doesn't work out there are 1000s of other women. It's short-sighted.

"It's like telling a guy who found the girl of his dreams if it doesn't work out there are 1000s of other women."

That's so dumb. If the guy who found the girl of his dreams is rejected by her because he's not the guy of her dreams, if he doesn't leave her alone he becomes a stalker.

It's a two-way thing. If texan needs a mortgage and they won't give him a contingency - WALK.

If you're considering buying a 2bed co-op in manhattan than I will assume the chances that you won't be able to get any mortgage are probably slim (unless you're really stretching) - despite the credit tightening. What's more likely is that you won't be able to get a mortgage at a rate that is attractive or doable. How do you protect yourself against that? I doubt any seller would put a rate band of some sort into a financing contingency...

Any thoughts there? That was my concern when i was thinking of buying...

mortage contingency is needed unless you are (1) prepared to lose you deposit if you cannot secure financing, or (2) you can and are willing to complete the deal in cash if necessary. There is no other nuance to this. It is not a difficult and subtle issue to parse. If you can't afford to lose the deposit or do the deal in cash and haven't 100% secured financing, you are insane to waive a mortgage contingency. any qualified attorney and financial advisor would say the same. I would hope your agent would be candid enough to say this too. Let me restate this: whether you need a mortgage contingency IS NOT A CLOSE CALL; you need it unless you have the means to complete the deal with cash or don't care about losing the deposit. If you get other advice, I'd be very curious to hear what it is and look forward to seeing the rational in a post.

Am I the only one on here that scratches his head trying to follow steve's logic?

Snostr - to protect yourself against that scenario, only apply to a bank where you are confident you can get a good rate. If you are rejected from that bank you can get out of the contract via your mortgage contingency clause (assuming the clause doesn't obligate you to apply to several banks).

"If texan needs a mortgage and they won't give him a contingency - WALK."

What's so hard for you to follow in that, joepa?

Why don't you try applying for a mortgage before signing the contract and ask the seller to give you a week or so to sign the contract. That way if the commitment comes through you can sign with the no-contingency and if it doesn't come through deal is dead anyways. I've done this a few tiems for clients who were facing this same situation.

stevejhx- house hunters intl is great too!

1 more thing- if you listen to Joepa you will probably lose the deal. Apply to a bank you are confident can close your deal not just a bank that offers the lowest rate.

Texan: The potential downside of not having a mortgage contingency FAR FAR FAR outweighs the cost of losing the deal. If you sign a contract w/o a contingency and later find out that you can't get a mortgage, you've lost the deal AND your 10% deposit. Think about how far that will set you back when trying to finance the next apartment you want to buy.

mbrokerNY, that is basically whatwe did several deals (two of which busted for other reasons and the last of which we closed on). In each case, we tried to drag our feet through our lawyers until we could have the bank do its appraisal and issue a commitment letter with only the standard pro forma conditions (i.e., still employed). In one case, we were pushed to sign the contract since the lawyers finished negotiating and we told the sellers we needed the appraisal to be done. We offered to sign immediately if they would give us the clause; otherwise, we would drop the clause but wait until we we had the commitment letter from the bank. The sellers opted to wait and we signed after we had our letter from the bank.

Kylewest is right on the money. Unless you can pay cash and/or don't mind losing your deposit (which I'm sure you do) do not remove the mortgage contingency. Somehow, somewhere wanting a mortgage contingency turned into a signal to sellers that you weren't sure if you could get financing. This is such B.S. A mortgage contingency is meant to spread risk in the event that sh*t happens...like, let me see....a credit crunch, terrorists, etc. What you can do is negotiate that you will get a committment letter in place in something like 10 business days after the contract is signed. If you can't get the committment letter within that time than the contract is null.

House Hunters is my favorite show!

Well - for starters, I am using a loose analogy between housing and love to draw a corollary between the "uniqueness" of the two and you go on a weird tangent regarding the guy being rejected and becoming a stalker. Second - your conclusion that if texan needs a mortgage and they won't give him a contingency he should walk (while it make sense and I understand it) has absolutely nothing to do with the original premise or point of what we were arguing.

Waiving a mortgage contingency is fraught with risk. My niche is the first-time buyer, and at least in my experience in this price range at this time, waiving a mortgage contingency is the exception, not the rule. Grunty's advice is sound - press for a 10-15 day time period from contract signing to obtain your commitment. A good loan officer / mortgage broker should be able to get an appraiser in there and have your commitment within that time.

If you're committed to proceed with a NMC contract - against the advice of the posters here - giving up your NMC has a $$$ value, and that should be reflected in your offer price. I recently had a buyer client who was purchasing a One BR WV apartment. The seller had previously had a problem with her contracted buyer's financing, the deal fell, and this time was insisting on a NMC. Our options were $510K with a NMC, or $495K without a NMC. Yes, technically my client's $49,500 was at risk, but she had the resources to pay cash if she HAD to. Which is really the only time one should consider this.

People are making complicated what isn't. "Press for a 10-15 day time period from contract signing to obtain your commitment." No. Period. THIS IS NOT COMPLICATED. A full waiver or bust. In this environment, lenders are moving slowly. Many require a signed contract to finalize a deal. The appraisal may be done quickly or not. AND the co-op or condo building itself has to be approved by the lender--not just you and your unit. This stuff can take time. And the lending sands shift almost daily. Get a real waiver or walk. You are not generally going to get anything finalized with a lender within 10 days of a contract being signed--no matter what you do ahead of time.

I'm with Kyle. Most purchasers in Manhattan will require a jumbo mortgage. This isn't 2006. get the contingency or walk.

On another note, when purchasing a condo in a new development, can you make the minimum deposit required by the condo at signing (perhaps 10%) and then kick in whatever equity the lender requires if necessary at closing to get the deal done? I can't imagine why one couldn't.

We ended up walking from this deal this morning. We pushed for a 30 day mortgage contingency, the seller would not agree to anything over a 14 day contingency. Our attorney advised us to get a contingency for at least 30 days-- according to him 10-15 days is not adequate time. This apartment has been on the market for less than 2 weeks. The sellers are in denial about the market forces. In time it will sink in. Does anyone have thoughts on us getting a mortgage and appraisal on the apt prior to signing? How much do appraisals cost anyway? ~Texan

Texan - sounds like the smart move. Hopefully it will work out. Start calling banks and research the best rates. You can also look at mortgage brokers to help you out (Manhattan Mortgage is one of the more well known ones in the city). Once you find a bank (or mortgage broker) that you want to work with, they will set up the appraisal (typically around $500/$600 but could vary). You'll need a contract and access from the seller, though. Start with the mortgage process asap. Find a bank, get all your documentation together (pay stubs, employer letters, etc.), do the application, pre-approval, whatever. If you want to even try to get a commitment prior to signing (which Kylewest eluded to can't be done in this market), you'll have to move really quick. I think it can be done - but it'll be tough.

kw IS correct that you won't get a commitment letter PRIOR to signing the contract - in this market or any other. As a condition of obtaining the commitment - at least in my humble experience - the lender requires a copy of the signed contract.

I'll differ with kw to this extent. People can and do get commitments in 15 days from contract signing, especially if they have the right agent and lender (it helps if the attorney drafts it as 15 BUSINESS days, which still may sound attractive enough to the seller). And while a lender, as kw points out, has to do its due diligence on the Co-op building, this can be done BEFORE the buyer signs the contract.

I was not advising this course of action, only that if this were the apartment that Tex just HAD to have, and IF the seller ABSOLUTELY insisted on a NMC contract, this was certainly a better option than agreeing to a NMC. And if, as kw suggests, the commitment letter is not produced within the given time period, the contract provides for a return of the deposit - no harm done.

I've suggested this on other posts but repeat it here: do what you can to access private wealth/banking divisions of lenders. Ask your friends, family, company colleagues, firm administrator, ANYONE if they can hook you up with a contact. For example, via a business contact, I recently secured financing through a bank everyone has heard of via their version of a VIP division. They paid virtually all costs (appraisal, etc.) and split the cost to purchase 3/4-point that I got to lower the rate. I had a personal contact who was available practically 24/7. Even with this VIP treatment, though, the process took some time mostly because they hadn't previously loaned to the building I was buying into and they had to do due diligence on it in addition to appraising my unit. If you have excellent credit and terrific finances such groups may be available to you since they extend "favors" to larger clients in order to secure those relationships by accomodating the larger clients' referrals. I explored multiple lenders at once and then chose: Manhattan Mortgage, Wells Fargo, and the one I settled upon. All were competitive, but even slight differences on a 30 yr fixed mortgage add up over the years and I wanted to feel confident I did enough work to know I was getting a rate that was at the lowest end available.

joepa, you're dismissed.

Texan, bravo! You have the upper hand today. When in 2 months the seller's broker comes back begging you to re-offer, offer them 30% less, and keep the contingency.

BTW "commitment letters" are not enforceable. Get the approval.

Texan-- "the apartment has been on the market less than two weeks" is the key phrase here. Without even seeing the unit I can tell you that if I were repping the seller, I wouldn't advise going into a mortgage-contingent contract at this point. You are asking the sellers to pull a fresh listing in an environment where credit is tight.

If, four weeks later, you don't have financing, then the listing is no longer "new" and the sales agent's job is that much harder.

I would advise watching the apartment for four-five weeks, and then reapproaching the listing agent. By then he/she will have a sense of traffic and pricing, and will be able to communicate to the sellers where you stack up in the hierarchy of possible buyers.

ali r.
{downtown broker}

You can go with mortgage contingency clause giving the seller the right to opt out the contract if you do not remove the contingency within 24 hrs of the seller getting another bonafide offer during the contract period. Like this, everybody can have their cake and eat it too.

Front Porch%u2014you are probably correct. The apartment was on the market long enough. I guess they were not desperate enough yet. I%u2019ll give it a couple of months before reality sets in. Not that we are waiting around for this to happen%u2014we have recommenced our search.

surdy I love that -- it is only a partial protection for the buyer, but from the seller's POV it's a nice way to meet in the middle.

ali r.
{downtown broker}

This may seem very naive, I apologize, but why are sellers generally insistent on not having the mortgage contingency waived?

At time of contract signing - perhaps two weeks or so after the buyer's offer is accepted - the buyer must put up his / her 10% deposit. If a buyer is unable to obtain financing, and is unable to complete the purchase, the seller is entitled to keep the buyer's deposit.

Thanks. I'm curious though - why not just allow people to have it waived and give it a reasonable amount of time as discussed here, 10-15 business days or whatever? Beyond the fact that the seller gets to keep a 10% deposit, what is really at stake here? Worry that another buyer who's interested will walk before the 1st buyer finds out they can't get financing?

It's not a question of "allowing" - it's simply that it's to the seller's advantage to have NMC, and it's to the buyer's advantage to have a MC. Like price, having / not having a MC is something to be negotiated.

In the torrid market of a few years back, sellers were often insisting on (and getting) a NMC - not so likely in the current market. While a seller is waiting for the buyer to finalize financing, his apartment is essentially "off the market". A seller (quite naturally) won't be AS upset to put his apartment back on the market again (possibly having missed the prime selling season) if he can retain the buyer's 10% deposit.

The 10-15 day is an attempt to reach a middle ground when there is a stalemate over the NMC issue. It's not proposed that often, in part because it can be tough to pull off.

tandare

Mortgage contingency is widely accepted everywhere else in the USA. For most part it was a seller's market in Manhattan for the last three years so any buyer concession was scoffed at. You could sell your property without handing out any concessions. Things are changing in the Manhattan market and I suspect it won't be too long before you will see the mortgage contingency become more of standard clause in a contract than not. This is all dependent on seller's mentality (and brokers prodding) whether it is beneficial for the seller to go ahead with the deal with the contingency than lose the buyer. It is a delicate balance between tying up the property for the time the contingency is in place vs the time it might take to get another offer. It is totally the seller's call.

Tandare - you're asking the million dollar question. The seller does not want a mortgage contingency because once they have a signed contract their apartment is essentailly off the market. If the buyer can not come up with financing, then the seller has to re-market their place. They've lost time AND potential buyers. In NYC where there's a ton of cash floating around there are (or used to be) a ton of buyers who could do a non-contingent contract or a cash deal, nudging out the mere mortals (those of us who needed a mortgage). When I bought I got the impression from my not so smart broker that it was all or nothing - either you had a contingency or not. I asked about doing a 15 Business Day contingency knowing that I had everything in place including all my paperwork and mortgage broker (and I made it clear to my mortgage broke that I was not paying them of they couldn't pull off everything within the alloted time.) Everything worked out fine. I was happy. The seller was happy. As a caveat: I personally did a ton of project management work during those 15 days. My broker was useless.

johnrealestate1

In this market it might not be to a seller's advantage to have NMC, especially if a qualified buyer walks if he does not get the MC. A second buyer might be long time coming. That might result in a lower offer as the market heads down. You know what they say in real estate "The first offer is (generally) the best offer" (price wise) and is more so (true) in a declining market.

I guess it is just hard for me to imagine that having an apartment "off the market" for 10 or 15 days is really going to hurt a seller. But I speak from no experience, so...

surdy - it's ALWAYS to the seller's advantage to have a NMC - IF the buyer agrees. Again, it's a matter of negotiations, what the buyer / seller WANT, versus what they'll agree to. If a seller insists on a NMC, and all the buyer prospects are walking, you're absolutely right.

Since I work only with buyers, we (and the attorney) always press for a MC contract. At least in my space (first-time Manhattan buyer, high 200K's to mid-400K's), a NMC is the exception, not the rule.

tandare - that 10-15 day timeframe is something the parties can shoot for if all else fails. But in a typical MC contract, by the time the buyer has demonstrated he can't get the financing, 45, 60, or more days from accepted offer may have transpired.

I agree, on paper a NMC contract is always better (advantageous for the seller) than one with MC i.e. purely based on contractual terms if both seller and buyer are in agreement. But like I said in the example above, in reality it might not be so when it comes to $$ and time line in today's declining market. It really is a lost opportunity. JMO.

"I wouldn't advise going into a mortgage-contingent contract at this point. You are asking the sellers to pull a fresh listing in an environment where credit is tight."

Mortgage contingencies have been the norm forever, until this bubble. ali, you're doing your clients a disservice if you advise them against them - they may not have another bid for 6 months.

If the buyer's financial summary (which the buyer's agent should prepare and provide to the seller's agent) shows a very highly qualified buyer with an employment and financial and credit picture that is excellent, a seller may be ill-advised to just let such a buyer walk because s/he insists on a mortgage contingency clause. It comes down to negotiations and the overall picture. To reject a very well-qualified buyer out of hand simply because they insist on the mort. contin. is silly. And as for the 10-15 day thing, securing a mortgage takes longer. You aren't realistically going to ever meet the 10-15 day deadline. There could be exceptions, but between the bank having to appraise the apt and do due diligence on the building itself, it is going to take longer. This kind of unnecessary pressure in a market that is shifting toward buyers seems silly.