Mortgage on NEw Condo Construction

Does your building have a preferred lender? Like the guy you usually contractually have to get pre-approved with off the bat?

Call ING Direct and First Republic. They should be able to help you.

Wanted to go with a bigger bank... any suggestions?

All big lenders follow Fannie Mae and Freddie Mac guidelines because they are not keeping the loans on their books.

You will have to go to small banks who do actually keep the loans on their books and therefore, have their own underwriting guidelines.

Both of those banks will be fine.

Honestly, my suggestion would be to use the preferred lender if you don't want to run from bank to bank. You can go the route of trying with other banks and then not finding out until you are way in the process that they will deny your loan for X number of reasons due to the strict new regulations (speaking from personal experience having wasted money on 3 useless appraisals) or just avoid the drama and get a guaranteed loan (as long as you can get a decent rate). I felt the same way you did a few weeks back and wanted the perceived safety of a bigger bank and got feedback (some of it on this board) that a loan is a loan and you just go with the best rate.

I mean I don't know your circumstances but I hope you have some sort of mortgage contingency. Also how far along is your building? How many units in contract and how far away are you from when they SAY you will close? Basically are you in a rush and do you have an out?

FNMA now requires 71% pre-sold on all new condominium for the loan to be conforming. This is because NYC is now viewed as a declining market.

ING's cap on condo mortgages is like $250K in NYC.

MAraman You are exactly right... Even If I buy the place.. I will have a hard time Selling the place if the market doesnt change or if the sponsor decides to rent 50% of the unit out. Sponsors are getting pretty desperate these days.

why do you want to go with a bigger bank? call a local or regional bank, rates will be better and you might actually get a loan.

First republic was acquired last year by Merril who was acquired by BofA. Still operating as an independent high net worth targeted subsidiary, so quite a large banking group and from what I hear from people, good rates....

As for ING, it is a pretty massive org that is willing to do Jumbo's since it holds on its books rather than sell into the market (good too becuase you can float down to whatever they are currently offering and extend your 5 or 7 year fixed period at any time during your mortgage for $750 without going through a refi, i.e. no reappraisel, documenting of income etc). Not sure if they have a limit in the city other than not doing coops..

I've read in previous threads that no single bank is willing to lend to more than 20-30% of the units in a given development. Has anyone come across this problem? It could be real trouble if there are only a handful of banks willing to do jumbos on NYC condos.

Kimerama- what exactly does it mean if a bank is the "preferred lender?" Does that mean they'll appraise at contract prices and lend to anyone who qualifies in the development? Or may they also have % of project limits as I reference above?

The preferred lender can be but often isn't a bank "it's" usually a mortgage broker (although he/she may be connected to a bank) who you usually have to get pre-approved with when you go into contract in new construction. Often times if the developer agrees to a mortgage contingency they want you to get pre-approved with this person and presumably use this person if another bank turns you down. Most sales agents now practically throw you at the preferred lender as they would like to see their commission.

Since this sort of lender is different for different buildings I can only speak from my experience and in one case the broker was a direct lender (although this particular bank always sold off the loan to bigger banks in a few months) and yes he definitely managed to work around the 10% rule (and it's actually 10% not 20-30% but, like I said, there are ways around this). This particular lender actually provided mortgages for well over half of the building -- although most of the building now actually reports to better known banks as the notes were sold off after close. From what I know they all appraised at contract price, and yes, as long as the applicant is solid he/she obviously doesn't have to worry about the building getting approved by the bank.

In the other case the preferred lender used different banks who may or may not have had to follow this rule (I got out of this contract last year when rules were different and know less about how the broker operated because I didn't really deal with this person).

These are fairly new rules so the fallout is only just starting and in a lot of cases the way a bank may have treated you in Oct or even Feb is totally different than how they'll treat people closing in a week. We'll have to wait at least a few months and hear stories from people who are in contract and trying to close now to really know how the rules are being followed (or not being followed due to loopholes or special exceptions).

kimerama, thanks for the explanation. related question for all: aren't banks missing the point by requiring 70% in contract when they actually have no idea how many contracts will actually close? i mean, it was probably reasonable in the past to assume almost all contracts go to closing, but not today when the probability of buyers walking away is much higher. what if your development is 70% in contract and you get the first closing notice? isn't your bank going to be very nervous about lending when, in fact, they have no idea if anyone else in the development is actually going to close after you? what if you are the second or third? still a scary proposition for the bank.

are banks getting squirrely about this? are we going to see developers coming back to all the buyers in contract for some sort of "commitment letter" to close in return for concessions? if all commit to close (after the concessions & subject to financing) the banks feel better about lending, all can get financing and therefore all can close. a developer cannot sell an entire project to cash buyers - they need the financing to be there, and maybe they play a more active role in it / share the pain because they have to. i'm just making this stuff up- but wondering if that's where we could be headed.

try everbank. i used them for new condo and got a mortgage in about 2 weeks.

Djles - you are correct about Sponsor's being desperate. I walked away from a contract and deposit on a condo scheduled to close in December when I realized that the price I was paying was at least 25% above market at the time (its even more now). I have filed for recovery with the AG's office. The Sponsor is now calling me up to see if I am looking for concessions in order to close, when they would not even consider it when I brought it up last year.

Fannie's new requirement is 70% in contract by owner occupied or second home owners. We do allow as low as 33% pre-sale but will require at least 25% down and a maximum of 650k loan amount. We also have the ability go lend in buildings with 51% in contract but on an exception basis. Honestly, its not always the bank that can not lend in a certain building but rather the lack of competency of the loan officer one is working with. sunny_hong@countrywide.com

maraman - can you say some more about why how you filed for recover with teh AG's office. I am about to walk away from a contract and want to know my options

maraman - same question here. would love to know the grounds for recovery

shong- does countrywide issue jumbos on manhattan condos?

I hired an attorney who reviewed my contract and the Offering Plan. He discovered that a couple of the disclosures were not properly completed. I later discovered that the property was not registered with HUD, as it was required to be, under the Interstate Land Sale Act. This law gives purchasers the right to rescind if Sponsor is not in compliance. Relief under this statute requires filing suit in Federal Court, which someone has already done in the building I contracted for.

Maraman, are you in the 20 Pine, 75 Wall st, or One Hunters Point?

111 Fulton

I think I read about this in the Times last week. Seems like a long shot, but good luck!

Maraman - I am in a similar situation and would love to trade notes and have a few questions for you - please email me at nondescript56 [at] gmail [dot] com. We hired an attorney to cancel a contract, as well. Out of curiosity (and for the board's consumption), what concessions did the sponsor offer when they contacted you?

Non-descript - a free washer and dryer. What a

What about you?

Wow, just a free W/D - would have thought they'd offer more, though probably just an initial offer.

So far here: help with financing and transfer taxes paid by sponsor and perhaps other closing costs...

Drop me a line via email - would love to trade notes about your case and mine...

If mortgages were being issued on new condos, wouldn't we be seeing some closings on new condos? The fact that we are not seeing any movement on new condos with significant numbers of units under contract indicates to me that there is a breakdown in confidence among new condo buyers and lenders. This can only lead to a control change at these new developments. That is the time honored tradition at this point in the business cycle. Why should we expect it to be any difference this time?

PMG- Check out The Brompton. Closings galore

First Republic will do it if you qualify as a 'high net worth' individual. Their only stipulation is that you are not the FIRST to close.

thedeuce - sorry for the late response but yes, we are issuing jumbo loans in Manhattan. But not only are we issuing jumbo loans, we are pretty aggressive with our rates. In fact, there was an article out on reuters.com last week- "Bank of America has balance-sheet capacity and we've allocated it to jumbos given our presence in some of the states and regions where that's important," Desoer was quoted as saying. Now of course, it also depends on the condo approval as well. sunny_hong@countrywide.com

hi - this is my first posting. interested in a condo, new development. got a pre-approval with the building's preferred lender (mortgage broker). rate on the mortgage is approx. 75bps more than the average condo mortgage. reason given is the new fannie's requirement on 70% sold, thus the lender will have to work with the local bank, keeping it on its balance sheet and not selling the mortgage to fannie. is this why the rate is higher? if so, why would someone buy into a new development knowing that the mortgage rate would be higher than a >70% occupied building (assuming pricing is the same)?

wallst - do you know what the actual pre-sale is? Also, which building is this?

shong - pre-sale means the # of apts in contract? i believe it is less than 10%. it is in brooklyn.

wallst - pre-sale meaning the number of units in contract or closed. If it is currently less than 10% then fisrt Im assuming the condo hasnt been declared effective yet. Also, you probably wouldnt be able to close with any bank at its current pre-sale. We need 33% at a minimum. Theyre probably quoting you based on a pre-sale they expect to hit. Could be wrong but that's what Im betting.

shong - appreciate your response. if assuming they're quoting me at a pre-sale they expect to hit, is the 75bps premium acceptable? also, with current times, isn't buying into a new development very risky, if they cannot hit an acceptable pre-sale, the value of the condo would depreciate further? wouldn't it makes sense for the mortgage broker to quote me a competitive rate to entice purchase?

wallst7: all the reasons you gave of why this particular new construction building is very risky are .. well all the reasons it's risky. Maybe you should rethink before you move forward. 10 percent "committed" in this climate is bad news.

Also so far as the mortgage broker, well I'm sure he's as aware as we are that most legit banks will not lend in these kinds of buildings (although they'll buy the loans from these guys oddly enough) so he's preying on people desperate to get in the building no matter what. Don't be that person. If he won't give you a competitive rate don't bother, too much inventory to dwell on one building.

If you are only interested in new construction find buildings that are like 90% sold and do your research on how happy residents are (easy to find postings on a site like this) and what the building and developer are like and then pounce if you can get a great deal.

wallst--my one question is--what the f--- are you thinking? and i mean this in the nicest of ways as someone who is in the situation you are attempting to get yourself into. Trust me--it's a shit show. I signed a contract about 1.25 yrs ago, and bldg will begin closing soon. I would give anything to get out w/ even part of my deposit. the bldg is about 40% in contract but from what i can tell about 20-40% of contract holders will be walking.
the mortgage rate is honestly the least of your problems.
unless you are getting some ridiculous sort of deal and by that i mean 40-70% off the going prices that these developers are still charging--or if the bldg is somehow off the charts of desirability-- it would seem EXTREMELY LIKELY that you would be able to purchase the unit or a comparable one at a significant discount at some time in the future.
Also heed the advice above, the chance of many of these developments failing is quite high
i would suggest you read the below 2 recent nyt articles

http://www.nytimes.com/2009/04/09/realestate/manhattan/09real.html?_r=1&ref=realestate

http://www.nytimes.com/2009/03/08/realestate/08condo.html?pagewanted=1&ref=mortgages

although the specifics probably differ from your situation somewhat, i think they speak as to the clear downward future of the market, a sentiment that now seems unanimous.

and if you are still interested in getting into this situation, maybe we can see if i can transfer my deposit to over to you--lets say 60 cents on the dollar.

has anyone had experience with the 421 tax abatement offered on some condos? My son was about to buy a condo in new building in Queens and found out the 15 yr. tax abatement was 'proposed' but not a sure thing. His attny. said it could take an unknown amt. of time to get approved and is not retroactive, so he could be liable for full taxes at 10k/yr instead of $500/ yr. Real estate agent is trying to convince him it's a done deal. We are skeptical. Since it's a new bldg, there is no history to go by. He'd be the first buyer in a 6 apt. bldg. Any thoughts from those of you who have been thru this before?

kiz10014 - How do you know the number of people you think are walking? Curious, as I was thinking of putting a bid in on a place that has about the same number under contract, closing is supposed to be soon, but I don't know how many of those under contract will actually close. Thanks for any info.

fsunurse: a six apt building is very risky with taxes in NY sure to go up, and then a "maybe" tax abatement? Tell your son not to do it. Small buildings carry too much risk per person with taxes and common charges on the rise. I have a friend in an established (95 percent sold) 36 unit new construction condo with a 25-year tax abatement coming soon, but it's been two years with no abatement for her so far. And forget trying to get a mortgage in that six unit building, probably won't be fun and you won't have your pick of banks, you'll have to take what you can get.

Also as far as I know a tax abatement is retroactive so if you are hearing it's not, that's a big red flag in and of itself.

Kimerama--thank you for the reply. Son's attny told him that tax abatements were not retroactive and the 2+ yr. wait sounds like a real possibility as attny says the city is slow to grant these. He never got as far as the mortgage, except to get a 'pre-approval' from Chase. I never thought about the 'risk per person' on a small building--very good point. It's been an eye-opener for us as parents for him and first time home buyer.

chimpwolf--I connected with about 10 or so people through chat rooms and chance encounters. It seems about 3to 4 are committed to walking away given the current valuations and uncertainty of a future of a bldg that may go significantly unoccupied for some time.
I'm sure more will also be unable to secure financing. If the bldg is less than 70% sold/contract then lenders cant sell the loan to fannie mae (assuming it is a conforming loan) so lending options will be limited, and may be limited to the preferred lender as was being discussed above. in our case many people need jumbo mortgages and got preapproved for 10% financing and are now told 30% is minimum down payment. As this is not 15 cpw, many people down have a couple of hundred grand extra liquid lying around. so i'm certain financing issues will prevent at least a handful of others from closing if if they want to.

If i were you (and i wish i was) i would in now ay sign a contract now. you have nothing to lose by waiting. prices can only go down, and you will afford yourself time to see whether the bldg will make it and not go bankrupt or become partial rental

kiz10014 & kimerama - excellent insights. thanks. i do understand the risks i am taking on buying into a new building. what i am trying to find out is the risk/reward, meaning how much room i have for negotiating the price of that unit. yes, mortgage rate is my least concern, but is one of the tools for negotiation. if there is a premium in the rate that i was quoted (approx. 75bps), then i could justify a lower price. same with the other reasons you guys gave. if i can get to a price where i feel comfortable (30%-50& off ask?), then i might get it, or else i'll wait.

kiz10014- i am curious to your building's situation. are the prices at your building going down, if so, by how much (since you signed)? and, what do you plan to do, walk away?

wallst--
the developer has not significantly lowered prices in my bldg and that seems to be pretty standard, developers are holding firm for the most part perhaps because their financing arrangements don't allow them to lower their proces or they think there will be a rebound soon. that being said, obviously something must give, and many bldgs will go to partial rental or bankrupt, both situations would really suck if you were an owner in that bldg,
yes i probably will walk, my deposit was 10% and although this is a nice chunk of change, it seems to be the more fiscally responsible thing to do,

wow, StellaBlue, if your definition of "closings galore" is 26 units in a 22 story building. There is no problem getting Manhattan new construction buyers and banks to closings in your view. Some may disagree. I have nothing against the developer or the quality of their product. I am sure the building is first rate. But Manhattan real estate values cycle, that is just a fact. And the down cycle scares buyers and lenders.

wallst - 75bps to the rate or points? Either way if theyre even able to do the financing at less 33% pre-sale then you dont have much of a choice. With us as well, at 33% pre-sale there is a significant add-on to the rate. The bank that is willing to take on the higher risk can add onto the rate.

PMG- my post about closings galore was 3 from 3 weeks ago. Since then closings have slowed down considerably, as I assumed they would. The Brompton will be an expensive rental for the forseeable future.